• January 30, 2010
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The CEO’s Guide to Merger and Acquisition Failure

Mergers and acquisitions can be an effective strategy for increasing shareholder value or one’s personal wealth. Unfortunately, research indicates that a majority of M&A deals fail to provide the anticipated benefits. A surprising number don’t build shareholder value and in many cases shareholder wealth is actually destroyed.

Here’s a thought: Maybe mergers and acquisitions fail because acquisitive CEO’s unconsciously set themselves up to fail. So, to help CEO’s succeed at M&A failure (or gain greater insight in how not to fail), we offer this parody: “The CEO’s Guide to M&A Failure.”

The first step to M&A failure is to start with the wrong motivations. Go ahead and pursue acquisition to overcome boredom or to build an enterprise that truly befits the capabilities of an outstanding executive like you. Or, if you want to be a little more selfless, follow the theory de jour. Chase ethereal concepts like convergence, divergence or merge-urgence.

It also helps to be reactive rather than proactive when it comes to selecting acquisition candidates. Rather than go through all of the planning and discipline of developing a cohesive strategy and a short list of highly qualified targets, just rely on investment bankers and intermediaries to bring deals to you. How else will you know that it’s meant to be? If that’s not working, read the business press to see who “they” think you should be buying.

Once you find an acquisition candidate that gives you that gut-level feeling of pure rightness, get it tied up fast with a letter of intent. Then announce the deal to your shareholders and the business press. Make sure your staff knows that this deal feels oh-so-right and that you really want the closing to go off without any hiccups. “OK, everyone. Let’s get this deal closed!” That’s the spirit.

When it comes time to value the target, ignore the gap between intrinsic or market value and the offered price. After all, if you want to dance, you have to pay the band. Besides, everyone is paying big premiums; it’s the cost of admission to the big show.

If you’re feeling a little guilty about overpaying, don’t worry. Just hire a consultant to give you a fairness opinion. Then relax and take comfort in that letter and assure yourself that the “safe harbor” it provides is tantamount to being a diligent, effective executive.

If for some reason your internal analysts can’t seem to justify the price you need to pay to get the deal done, tell them you want them to find ways to increase revenues and cut costs. If necessary whip-out the 10 mega-ton: “Find and quantify some synergies.” Lean on your people to develop plans to increase revenues. What else are you paying them for?

Keep your analyst’s imaginary worries from squelching enthusiasm for the deal. How? By making sure that everyone knows that the modeling is being done by the bean-counters—those bright, number-crunching, spreadsheet wrestling, underachievers in the finance department. You can hobble opposition by discounting the street smarts and vision of any would-be detractors. If that fails, call their motivation and team spirit into question. It deflects attention away from the so-called “issue.”

As due diligence progresses, use questions like: “How well is diligence going? We ARE going to be able to close on time, right?” This will discount and discourage any of those pesky naysayers from putting their jobs on the line to speak up for the shareholders and protect your future. After all, who likes those “glass is half empty” types anyway?

The experts say that deals often fail because of the lack of a post-acquisition or merger-integration plan. That’s easy enough to fix. Assign the responsibility for integrating or assimilating the new acquisition to a trusted manager like…eh, Harry. Tell Harry and his team to make a good plan and make sure it gets implemented in short order. That’ll do it, and now you are free to move on to your next big deal. The best part of this approach is that if the acquisition fails, you can always say: “Heck, we had an integration plan. We had old reliable Harry and his handpicked team in charge. He never let us down before. Sorry, Harry…..” Then, fire Harry and move on to the next big deal. By this time, you’ll need one to gin-up investor confidence and interest.

Least you be accused of managerial hubris, remember all good leaders need advice. So, to succeed at failing, get your advice from people with one or more vested interests in closing the deal. Good examples are investment bankers and brokers looking to earn a fee, ambitious employees who hope to ride the deal right into a better position within the company, and the usual sycophants with their endless agendas.

If the press gets a hold of the deal and likes it, believe everything you read. Consider it validation of your managerial genius. If the press’s lack of wisdom leads them to lambaste the deal, don’t worry. After all, they don’t have all the facts now do they? They just need an education—to get the vision. So, stay on message and close that deal. Hire a PR firm if necessary.

You can relax after the deal snug, safe and sound in the realization that if anyone really believed it was a bad move, they would have stood up and made their feelings known, regardless of your own enthusiasm. “Hey team; you’re not a bunch of yes-men, right?”

Finally, remember to make a visionary speech after the closing. Hawk all of the deal’s positives: the synergies, the positioning, and the global-competitive-breakthrough nonsense. Smile. Radiate. Leave your collar unbuttoned so it looks like you’ve been working day and night on the deal. Then, present Harry or Sally, as the new division CEO or the Vice-blah-blah-blah that will lead the company to the Promised Land. At the podium, take a deep look into his or her eyes, give a warm embrace and love that person with all your soul. Lavish upon this tethered lamb all executive praise and perk, because, while you’re out doing your next big deal, this person is going to be absorbing all of the heat and sacrificing career and reputation to do the undoable.

So, if you’re looking to fail at M&A, just follow this simple plan. On the other hand, if you want to improve the chances of M&A success, do something different! It’s kind of reminiscent of the old Henny Youngman one-liner wherein a patient tells the doctor, “Doc, it hurts when I do this.” The doctor replies, “Then don’t do that.”