Survive company mergers

Many promises are made at the altar during a merger or an acquisition. Most of them get broken. It is worth reminding yourself of this now, before the next wave of whirlwind corporate romances arrives.

So far this year there has been only mixed evidence of renewed appetite for M&A. Sure, the proposed £40bn ($66bn, €47bn) merger between the mining companies Xstrata and Anglo American caught the eye, just as Oracle’s $7.4bn deal to buy Sun Microsystems and GlaxoSmithKline’s $3.6bn move for Stiefel Laboratories did.

The past three months have been relatively quiet, however, as businesses wait to see how robust any potential economic recovery really is, and whether finance will be available. Getting valuations right at a time like this is in any case extremely difficult.

But now that investment banks seem to be back from the brink they will surely be looking to get the volume of transactions up again soon. You can’t keep a good corporate financier down. Business leaders will see opportunities to carry out bold restructuring through the mechanism of mergers, disposals and takeovers.

For these reasons we should be grateful that Scott Moeller, director of the M&A research centre at Cass Business School in London, has picked this moment to publish a useful new book*.

Two years ago Prof Moeller, a former Booz consultant and investment banker with both Morgan Stanley and Deutsche Bank, co-authored (with Chris Brady) Intelligent M&A, which took a top-down look at M&A strategy.

But this latest offering makes everything much more personal. Prof Moeller looks at how individuals can be affected by these transactions. Given that you are likely to be involved in a merger or acquisition at some point in your career, and perhaps sooner than you think, how should you plan to deal with it?

This is something all managers need to think about – even the most senior. As Prof Moeller writes: “No one, not even the CEO of the company, can control the changes taking place once an acquisition or merger is announced.” Uncertainty will rule, particularly as far as headcount (and the different personalities involved) is concerned. “It usually isn’t clear to senior management at the time of the announcement who should stay and who should leave,” he says.

You may think you are safe because of “synergies” and the lack of overlap between two businesses. That guarantees nothing. Whole departments or divisions may be sold off to help pay for the deal.

Talent does not necessarily offer much protection, either. “One of the biggest myths during a merger is that those with merit will be recognised and retained,” Prof Moeller says. But the common practice of “sharing the pain” between both companies may lead to all sorts of ill-advised departures.

The more senior you are, the more vulnerable you may be. “The higher up you are… the more likely that your position has a comparable incumbent on the other side…and the higher the chance you will be made redundant in a merger.”

Most of this ought to be familiar, or at least make sense. But the temptation to pull off spectacular deals persists. Perhaps that is why business leaders often say such strange, disingenuous things while they are conducting them. Prof Moeller provides a list of some of these phrases, with a helpful glossary:
●“This is a merger of equals, not an acquisition” is almost never true. One company will be on top.
●“We will pick the best of both organisations” often breaks down in practice. The acquiring company may want to retain the best but will find it hard to do so.
●“The right decisions about the new organisation will take time” is a holding statement, put out to disguise the fact that corporate leaders in fact want to proceed at speed.
●“Decisions about who will retain each job will be made on merit” – but also on politics. People will be jockeying for power, and forming new alliances. Merit alone may not save you.
●“No further acquisitions [or mergers] will be required” – for the time being. Change will come again. The merger may be reversed through subsequent spin-offs, or perhaps an even bigger coming together will be planned.

Deals can be exciting, even fun. You can grow much more quickly by grabbing hold of another business and helping yourself to its customers. Organic growth takes longer, is less exciting and involves a lot of hard work.

But M&A can be fraught, and filled with potential hazards. The majority of transactions fail. Destructive tensions can rarely be avoided. After an over-hasty engagement and lavish nuptials comes bitter disappointment.

And, even if it is an old joke, Prof Moeller is right to give one phrase another outing in his book. “A beautiful marriage,” he observes, “is one in which two people become one. The trouble starts when they try to decide which one.”
*‘Surviving M&A: making the most of your company being acquired’, by Scott Moeller (Wiley)