Mergers and Acquisitions: A Recipe for Disaster?

So, big buzz in my office this past month: the number one player in our industry signed on the dotted line to purchase a huge up-and-come-er, mostly because of its e commerce success.  Our team members, and the team members of other industry players, watched the whole thing happen with eyes open wide.  Our competitor bought the company for an exorbitant amount of money.

Thing is, the company they bought is less than five years old and lost $100 million last year.

Our deep-pocketed competitor has acquired other e commerce companies in the past, and the results were not necessarily to their benefit.  They weren’t able to get their plans off the ground, and eventually the company, its mission and its success was just folded in with their larger counterpart’s business-as-usual practices.  Their mergers were not star-studded successes.

This is why my interest was piqued when I found an article in the June 2016 issue of Harvard Business Review, “M&A: The One Thing You Need to Get Right.”  In it, author Roger L. Martin states, “M&A is a mug’s game: typically 70%-90% of acquisitions are abysmal failures.”

UmpteenWhen I search the internet and other sources, I find that Martin is not alone in his opinion, but his declaration is out there a little further and a little bolder than most.  When companies look to obtain value for themselves – access to a new market or capability – they’re spotting the same opportunity that other companies see, and the value of that opportunity will be lost in the bidding war.  He says that when a company acquires or seeks to merge with another company to take what they have, the merger is not likely to be as successful as when they look to infuse the acquired company’s assets with their own to make it more successful.

When the company I work for was acquired by a private investment capital firm, they were looking to do exactly that.  They looked at our company as an investment and they did everything Martin recommended:

They were smart providers of capital – They wanted to see our company grow so their investment would pay off.  They provided capital so we could expand our national footprint with new locations, improve our distribution center, and so on.

They provided better managerial oversight – When our owners purchased us, we didn’t really have expertise in place.  They allowed us access to their marketing experts, their legal team, and so on.  They helped us hire our own experts and stand on our own two feet as a growing company in a whole new league from where we were before.  They managed us like a larger business, and we became one because of it.

They shared resources – Our investor’s collection of companies allowed us access to fabulous discounts and buying power we didn’t have before.

I don’t think our competitor purchased this company because they wanted to give the company an injection of their money and skills.  In fact, this acquired company was stealing customers right out from under them.  Our competitor is buying their customers back.  But the acquired company has converted them into unprofitable online customers, and the parent company is now going to be charged with the miracle of making those customers profitable again.

It remains to be seen if this will be a success or a failure.

Revolutionary Assistants aren’t often involved in mergers and acquisitions, and if we are we’re pushing the paper and watching it all fall in place from the sidelines.  But if your company is involved in a merger, whether you’re the buyer or the seller, it pays to know a little bit about what you’re looking at.  Take a moment to ask your manager to explain the circumstances, see if it passes the above test for success.  You might be surprised at what you find.

 

Next Post:  Wednesday, July 12

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