How to Avoid a Bad Merger and Acquisition Deal

With mergers and acquisitions at their peak, we thought it might be helpful to dive into the decision-making process behind a successful (and not so successful) M&A. Companies like Boeing are always looking for acquisition opportunities, but how do they decide what kind of company is best to approach with a deal? And what should they be doing internally to prepare for the merger?

 

Most companies are a little smaller than Boeing, but the concepts are still the same – M&A is on the rise. The problem is that so many of these mergers and acquisitions end in failure. This is because there are so many moving parts in an acquisition. There are two companies with different values, people, technology, customers, and markets that must come together flawlessly. It is up to the boards and CEOs to make this work. This can be tricky due to self-interest or a lack of understanding of the other company. Often times these M&A deals end in loss of trust from shareholders and loss of jobs for employees.

When considering an M&A deal, a board should research the proposed company in depth.

 

What are the company’s values? Do they match ours? Is culture similar? Do they practice what they preach? In some cases it is really hard to stand up for your company when everyone around you is telling you to “take the deal” or “make the deal” – this is what happened to Allergan is their recent hostile takeover attempt by Valeant and their subsequent successful merger with Actavis. The board was able to recognize that Valeant’s M&A history left a trail of gutted companies in their wake. When Valeant came at them with full force and put pressure on the board personally and professionally, they stuck together. They leaned on one another and retained communication internally about their stress, fear, and anxiety. This gave them the strength to say no to Valeant and find another company (Actavis) that fit their values to merge with. This merger ended up saving shareholders about $25 billion.

For every successful merger, there are always failures.

 

Most recently, we saw the departure of Canadian grocery giant Sobey’s CEO after a disappointing quarter following a merger with Safeway. The parent company, Empire released Marc Poulin from his duties as CEO of Sobeys. Poulin was unable to create synergy between Safeway and Sobeys in addition to a rough year for oil prices. These two challenges created a perfect storm for loss. Empire reported a $2.13 billion loss for the 2016 fiscal year after paying $5.8 billion for the Safeway assets.

 

The board was clearly unhappy with Poulin’s performance and replaced him with an interim CEO and president. While the oil prices were unpredictable, the lack of synergy could have been avoided. Sometimes acquisitions seem so perfect when you don’t consider the human aspect of them. In merging, you must combine two companies that might be in similar industries, but usually have completely different ways of running the actual business. Bringing together two sets of people is difficult, but not impossible. Board members must be acutely aware of the goals of their company and how they relate to others. This is what brought Allergan success and Empire failure.

 

As you approach M&A deals, take your time. Bring on experts and legal counsel. Speak in-depth about how you plan on bringing two cultures together. It may seem excessive and expensive, but ultimately, a failed merger or acquisition will cost your company much more.
To learn more about how to approach M&A successfully, please contact us.

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