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The members of the senior leadership team of the Acme Brush Company looked frustrated and confused; the brush handle repair company they were thinking of acquiring was something of a puzzlement to them. The numbers looked good, the move made sense in terms of the synergies it created, and everything fit together nicely from a strategy perspective, but something didn’t feel right. What was it that kept them from pulling the trigger on this important acquisition? Sure, there were the small issues that the CEO of the target company was having an affair with his assistant and that the other members of the target senior team seemed to be generally evasive and incapable of making decisions independent of the CEO. But that shouldn’t be a big deal, should it? Why the hesitation?
“Beware the Jabberwock, my friends, or you’ll wind up with your Bandersnatched!”--Lewis Caroll, 1872 (sort of).
For starters, from my experience a true “merger of equals” is a figment of someone’s egalitarian fantasies, or at least as rare as hens’ teeth (remember the “merger of equals” at DaimlerChrysler? Yeah, right). Usually somebody is buying somebody else, plain and simple.
Secondly, keep in mind that the vast majority of mergers and acquisitions fail, (up to 80% by some studies). These failures run the gamut from failing to deliver the value that was expected (think AOL/Time Warner) to hastening the demise of the acquiring companies (remember Excite@Home during the dot.com era? I didn’t think so…).
The pundits argue about the causes of this huge percentage of failed acquisitions, but most will agree that culture clash, or “people issues” is one of the primary causes. Speaking of “people issues,” if you’ll trace the causal chain back one more step, you’ll often find that oversized egos and the “thrill of the hunt” predate many bad decisions on acquisitions (“Gosh, we must be smarter and better than those guys, because we’re buying them!”).
Therefore, during your due diligence process, wouldn’t it make sense to assess the “people talent” or “people value” of the target company? At a minimum, wouldn’t it be wise to know the value/talent level of the senior leadership team members? If you’ll buy me premise that leadership is the #1 variable affecting the success or failure of an organization then this is a no-brainer.
Unless, of course, you plan to replace all the leaders, wouldn’t it make a difference in what you’d be willing to pay in your purchase price if you found a senior team of “A” players versus a senior team of “C” players? Included in my definition of “A” players would be a strong values and priorities match with those of the acquiring company—call me crazy, but I don’t think having an affair with one’s assistant or not being able to think independently would qualify as a strong match in most of the organizations I work with…
TECHNIQUES
Technique #1: Do a thorough job of due diligence when considering an acquisition; beware the siren call of ego or the “thrill of the chase.”
Technique #2: As part of your due diligence, be sure to assess the cultural “people issues” and “people value” of the target company.
Technique #3: At a minimum, always assess the leadership talent of the senior leadership team. Are you buying talented solutions or are you buying draining problems?
Copyright Terry "Doc" Dockery, Ph.D. All rights reserved.