Blog: Acquisitions-Mergers

Are you ready?

One of my contacts asked if I could expand on my experience with mergers. There are numerous articles on stating the majority of mergers failing. Even the big guys like Hewlett Packard, with all the resources, fail badly in making acquisitions and mergers.

Right off the bat here are major reasons for acquisitions and to fail:

  1. Poor due diligence by both sides.
  2. Poor planning for the post-organization.
  3. Inexperience of teams assigned to make it work.
  4. Personnel assigned to the task already have full-time jobs and have little time for an acquisition or merger.
  5. Differences in the company cultures.
  6. Not communicating fairly by those whose role may change.
  7. I believe poor communications at the very beginning can cause failure.

Following are several simple questions that can be applied in advance before moving forward and if ignored, can result in wasted time and use of resources (both personnel- and cash-wise):

  1. Are the strategic goals of the potential partners similar?
  2. Are the staffs compatible? Who will be president? Will there be two CFOs available? See 6 above on this reason.
  3. Are the cultures compatible?
  4. Is the method to be used for valuation of each company agreed to in advance?
  5. You can expect trouble if the answers are no to any of the above questions.

As an example, When I was on a Board of Directors, of an $800 million revenue public company involved in an acquisition that failed badly because:

  • The acquiree management staff was an unknown.
  • The foreign culture was different.
  • The method of valuation defied logic.
  • As a result, after balking at the deal the acquirer wanted to walk away before the papers were signed. What followed was legal suits develop, a foreign government agency getting involved and even a hedge fund entered to sued the acquirer’s directors.
  • The purpose of the acquisition was political, but made no sense to the acquirer’s independent directors, who represented a majority of the board of directors, therefore they backed out.

Ironically, the result was that the deal was ultimately rejected by the acquiree shareholders.  The acquirer won, but it cost over a million dollars and over a year wasting time fighting the deal.

It’s easy to sit around a conference table with every one getting excited over a merger, but that is less than 1 percent of the effort to make a successful merger from either side.

I did see a couple failures with successful growing start-ups failing in acquiring a company, for the same reasons. They felt they had the resources to accomplish the deal, but the CEO didn’t realize this was a very new effort, he lacked the experience and he didn’t know he had to spend significant time, for several months.