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MERGERS & ACQUISITIONS

I learned to my horror a few months back that up to three-quarters of all business acquisitions fail to pay back. In other words, the money that is paid for the business is never recouped out of future profits. Can this be true, I thought?
 
And then I thought about my own experience: when we sold Marketing Principles to Interpublic in 1999, the UK management which undertook the 'merger' made such a horlicks of it that four of our six management team (including me) were gone within a year - and many of the clients followed them out the door. (It's fully documented in "The Unprincipled", as some of you will know).
 
I will have a large bet that the money IPG paid was frittered away, though I can't prove it. The fact that they were doing many such deals at the time all round the world, and that their then share price of $33 is now around $10 tells you all you need to know.
 
But why is this? Put simply, most (virtually all) acquisitions are the sole responsibility of accountants, for whom due diligence means doing the numbers. They may say they do a lot more in terms of general business advice, but mention sales, marketing, distribution, operations, HR, IT, and all you get is bluster.
 
But in an acquisition situation, however important the numbers are (and I am not minimising their importance), the failure to run the rule over operational, managerial and cultural 'fit' is in my opinion the core reason behind that horrific failure rate.
 
So I've decided to put my money where my mouth is and do something about it. As of the end of this month, there's a new kid on the block, trying to improve the odds of success: we call ourselves The M&A Team

CAN WE DO IT BETTER?


Well from all the statistics I've seen, we can scarcely do it worse.

The newly formed M&A Team will bring what we're calling a 3D approach to mergers and acquisitions, instead of the myopic one-dimensional numbers game, currently employed to such disastrous effect.

First, strategy: why do you want to grow by acquisition anyway? What's the vision - the big idea?

Secondly, where's the growth to come from? It's a well-rehearsed truism that if you take over a competitor (generally the most common scenario), 1 + 1 = 1.2, on average. For all sorts of reasons, which you can probably work out for yourself.

Go for a complementary business, however - where you can sell your wares to their clients, and they can sell theirs to yours - and 1 + 1 can equal 3 or 4. The arithmetic looks a lot more attractive.

  • But only if the two businesses can actually work together.
    Can the operational systems be merged into one smooth process?
  • Will the two management teams be able to keep a civil tongue in their heads when speaking to one another, never mind behind their backs? They don't necessarily have to be best pals, but some grudging respect from the big egos is essential.
  • Most importantly, will the two business cultures be able work as one? And if you doubt the critical nature of that, just look at the car crash that happened when Hewlett Packard took over Autonomy. That disaster arose arguably as a result of an awful clash of two entirely opposing cultures (and has cost HP to date a write-down of many billions).

The M&A Team will be putting all of that - together with a detailed post-acquisition strategy - on the agenda, before any detailed negotiations begin.

It may be, of course, that once you've done all this detailed due diligence on the takeover apple of your eye, you'll decide that discretion is the better part of valour. It may be, too, that you'll have incurred fees running into tens of thousands in the process, that will have to be written off. But isn't that preferable to writing down several millions at a later date?

For a fuller expose of this and our new venture, go to www.mandateam.co.uk

David Croydon: 01844 238692 or e-mail dave@hilltopconsultancy.co.uk




For more information, or to arrange a no-strings-attached initial meeting, contact:  

David Croydon

Hilltop Consultancy
Business Advice Oxford, Oxfordshire