Acquisition Marketplace Review - The Journal of Applied M & A Theory

The CEO's Guide to M & A 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. See page 2

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