Winning - Jack Welch [76]
All in all, successful mergers create a dynamic where 1 + 1 = 3, catapulting a company’s competitiveness literally overnight.
You just have to do it right.
This chapter is about that process, and it is intended for everyone involved, from the people making the deal to those who are affected by it several layers away. Over my career at GE, I was involved in well over a thousand acquisitions and mergers, and over the past three years, I have consulted with managers during several more.
Obviously, not every deal I’ve participated in has been a success. But most were, and over time, my batting average improved as I learned from the mistakes made in situations that did not work.
In the end, I’ve learned that merging successfully is about more than picking the right company to fit your strategy, laying out what plants you close and what product lines you combine, or how pretty your calculations of DCRR or IRR look.
Merging right is ultimately about avoiding seven pitfalls, by which I mean mistakes or errors in judgment. There may be other pitfalls out there, but in my experience, these seven are the most common. Sometimes they can kill a merger, but more often, they significantly slow it down or reduce its value or both.
Here they are in brief. Six are related to the acquiring company, and just one to the acquired.
The first pitfall is believing that a merger of equals can actually occur. Despite the noble intentions of those attempting them, the vast majority of MOEs self-destruct because of their very premise.
The second pitfall is focusing so intently on strategic fit that you fail to assess cultural fit, which is just as important to a merger’s success, if not more so.
The third pitfall is entering into a “reverse hostage situation,” in which the acquirer ends up making so many concessions during negotiations that the acquired ends up calling all the shots afterward.
The fourth pitfall is integrating too timidly.
With good leadership, a merger should be complete within ninety days.
The fifth pitfall is the conqueror syndrome, in which the acquiring company marches in and installs its own managers everywhere, undermining one of the reasons for any merger—getting an influx of new talent to pick from.
The sixth pitfall is paying too much. Not 5 or 10 percent too much, but so much that the premium can never be recouped in the integration.
The seventh pitfall afflicts the acquired company’s people from top to bottom—resistance. In a merger, new owners will always select people with buy-in over resisters with brains. If you want to survive, get over your angst and learn to love the deal as much as they do.*
BEWARE DEAL HEAT
Before looking at the pitfalls in detail, it’s worth pointing out one thing. Many of them happen for the same reason: deal heat.
I’m sure I don’t need to illustrate this phenomenon in gruesome detail; you see it every time a company is hungry to buy and the pickings in the marketplace are relatively limited. In such situations, once an acquisition candidate is identified, the top people at the acquirer and their salivating investment bankers join together in a frenzy of panic, overreaching, and paranoia, which intensifies with every additional would-be acquirer on the scene.
Deal heat is completely human, and even the most experienced people fall under its sway. But its negative impacts during the M & A process should at least be minimized if you keep these seven common pitfalls in mind.
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The first pitfall is believing that a merger of equals can actually occur. Despite the noble intentions of those attempting them, the vast majority of MOEs self-destruct because of their very premise.
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Every time I hear about a so-called merger of equals taking place, I cringe thinking about all the waste, confusion, and frustration coming down the pike