Wednesday, July 10, 2013

Date Night? Deal Night!

A Sun Valley get-together has been described as the summer camp of deals. The high mucky-mucks play together and decide that their companies should merge. Heck, the two of them get along so why not? I'm sure they come armed with smart phone notes about the valuations of the various companies represented. I'm sure they have ideas about the strategic synergies their merged organizations can leverage...oh, wait, maybe it's just leverage they want, as in debt.

Merger-acquisition successes are not high: only 10-30% create lasting value. The failure rate of M's & A's is higher than the divorce rate. Just like second marriages (and thirds, and fourths...), which many CEO's have, they also go down in flames because people look for the same kinds of partners, but hope it will change.

"We get along. Hey, I think we should merge our companies" is probably heard around the Sun Valley conference rooms and if the participants don't stay for the sessions (like a lot of conference attendees don't) then around the golf courses, pubs, tennis courts, kart tracks, and everywhere. "Our two companies could take advantage of our distribution channels while we capitalize on the social media buzz we'll enjoy."

Having the top tier make the deal based on how well they get along is like Romeo and Juliet creating a Montague-Capulet merger. It'd be a bloodbath. On the golf courses, and in the board rooms, no one thinks about how well the two families are going to get along. Any change creates insecurities and challenges to people's positions. They will either embrace the opportunity or get defensive--maybe even go on the attack. I saw this with one company that refused to adopt world-class practices because the acquiring company managers believed they didn't have to listen to the 'adopted kids' in the family. They were 'natural born' and therefore their ideas were superior. After all, they bought 'them', right?

We know the dismal success rate of 'normal' M & A activity, when people are actually focused on their jobs. What do you think the Sun Valley success rate is? One big push is to have TimeWarner combine with Charter, another communications company. Yeah, like TimeWarner has perfect successes with combining with other companies. Remember their bout with AOL? They barely keep Time and Warner together.

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