Learning your M&A ABCs.

Thomas Waters, twaters@tampabay.rr.com

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Summary: Over 500 mergers and acquisitions failed last year. Perhaps it's because the CI departments were involved at the wrong time, or simply because they were not involved at all. Thomas Waters reminds us of the ABCs of mergers and acquisitions, and describes his recent completion of a big M&A project.


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Have we seen enough merger and acquisition (M&A) activity lately? Hewlett Packard and Compaq seem to have squeaked their way through their shareholder problems.  Ameritrade’s acquisition of Datek? Still in progress but seems likely.  Arthur Andersen’s sell off? The writers are changing the business school cases on that one almost daily.
Yet according to Bloomberg, over 500 mergers and acquisitions failed last year. What a shame. All of those grandiose plans and strategies shot. All the time and money wasted. How is that possible? Perhaps it’s because the CI departments were involved at the wrong time, or simply were not involved at all.

CI professionals must be a part of due diligence before any M&A project, but our responsibilities are distinctly different from the legal department’s. When we see benefits we should note and quantify them. When we see storm clouds on a potential horizon, we must be the ones to speak up. CI professionals need to have the ear of decision makers and the nerve to stand up and say “I think this is a bad idea because of X, Y, and Z."

Just this spring I completed a big M&A project. I was directly involved from the beginning, so I admit I was excited, and also nervous that something would go wrong. It took about seven months from start to finish. I had a great deal of work to do before anything could even be initiated. Then, after the offer was made, it became public and the real work began. There were certain approvals that had to be granted and government forms to fill out, and we had to contact all the relevant stakeholders and make them aware of what was happening and why. Were we really ready for this? Yes, ultimately we were. It all comes down to knowing your ABCs.


ABCs of mergers and acquisitions

You don’t remember your ABCs? A lot of people don’t. That’s probably why so many M&As fail, and fail miserably. Had all the decision makers really sat down, put all their posturing and egos aside, and hammered out the pertinent issues, a lot of those failed unions could have been prevented. Some of them might even have been saved.

What are the merger and acquisition ABCs?

A – Attractiveness

Is this an attractive business for us to be in? What is our M&A partner better, stronger, faster, or cheaper at than we are? Do we want to become known in their industry (or niche) with our name? What will their industry look like in a few years? What benefits will we see five or ten years down the line by being in such a business? What benefit will they have in being in our business?


B – Better off

Should we be the acquirer or acquiree? Do they have intellectual property that would benefit us? Do they have an inventory management system that could optimize our manufacturing operations? Do they have expertise in certain foreign markets that we do not have? If the combined firm is not better off, don’t do it!


C – Cost

What is the cost of this merger, in real dollars? It’s not just the money we plunk down on D-Day. What is the final cost after contract expenses, attorney’s fees, layoffs, and the logistics of merging two completely different cultures together? Is it worth it? Are we distinctly better off together versus remaining individual concerns?


If this sounds simple, it is. Don’t try to make it any more complicated than it appears by throwing in a lot of management theory or the latest business bestseller rhetoric. Look for an M&A partner whose product you can market better than it is now, transfer technology from (or to), or with whom you can force a critical change to the industry. Don’t try to benefit from economies of scale if one of you doesn’t have a distinctive capability that can immediately benefit the other.

It isn’t easy, but sometimes life isn’t easy. Like I said, I worked on this merger for over seven months. It wasn’t without its difficulties. There has been considerable inventory to go through and purge. Eliminating redundant facilities was emotionally difficult but must be done if costs are to be controlled. Consolidating different financial systems takes time and attention away from other, more forward looking projects.

But in the end I am convinced it was worth all the time and effort and cost. It all became official on April 20, 2002. That was the day Catherine Elizabeth Meyer vowed to be my wife. Attractive? Yes, she is. Am I better off? More than I can ever express. Cost? To quote a popular TV commercial:

Priceless.