Mergers and acquisitions
Over the last couple of months we’ve seen a number of important mergers and acquisitions, although in reality most have been simple buyouts, based very much on one company seeing another’s value and simply writing out a check.
But a really successful acquisition isn’t one in which a price is agreed after negotiations and due diligence carried out by financiers and lawyers, but those based on integrating people and teams into a new structure. The companies making the best advantage of M&As as a competitive tool are not those buying at the best price, but those that are able to hold onto the workforce they acquire, which is a business’s most important capital. Over the last couple of years we’ve seen a number of consolidation operations that have turned out to be disasters, with purchases losing their value within months, revealed to have been hollow shells, soulless skeletons unable to perform under new ownership.
Acquisitions are common enough in corporate finance, but they cease to make sense when subjected to purely financial criteria. Few companies are able to keep the dreams of their founders alive, to make them think that the money and synergies involved will allow them to take things to a new level, and those that do are able to achieve real competitive advantages as a result. Others simply throw their money away, or as is common in many industries, see an acquisition as a way of removing a bothersome competitor from the field.
So when you read about the next acquisition in the coming days and weeks, you need to look at it not in terms of the money that changes hands, but rather in terms of whether the new team being bought in will be able to continue doing the interesting things it was presumably bought for within the new structure.
Is it really worth negotiating clauses that oblige a founder to stay with the company if all he or she is going to be doing is waiting out their time until they can take the money and run?
Wouldn’t it be better to try to keep those people motivated so that they continue to be a differentiating asset that is worth incorporating into the new structure? And if that isn’t going to be possible, then wouldn’t it make more sense not to go ahead with the operation?
What makes a successful acquisition is what happens after the purchase has been made. It’s not how much you pay, but what you intend to do with the acquired company a year later. On many occasions, it’s so clear that some acquisitions make no sense and are simply misspending shareholders’ money and that all we’re really seeing is how inflated egos and “financial prescriptions”, along with movies about Wall Street sharks pompously working in M&As have changed the world…
(En español, aquí)
