Wednesday, September 3, 2008

When to fire your M&A management consultant

Some time ago, I gave a presentation to a group of executives from a variety of companies on the topic of acquisitions. Much of the talk was about how vastly different acquisitions can be, in terms of the purpose they are intended to serve.

As often, I ended my talk urging the executives that, if they would ever come across a consultant who would tell them “this is how you should integrate acquisitions” (promoting one particular method), they should fire him. Because acquisitions can be so enormously different in purpose and nature that they really require quite fundamentally different approaches to integration, and if someone recommends a “one mould fits all” method, it is best to show that person the door.

Little did I know that the speaker coming after me was a consultant, armed with an impressive array of powerpoints on “this is how you should integrate acquisitions…” He looked a bit apologetic. They were also the main sponsor of the event.

Anyway, I sort of mean it. Because sometimes acquisitions are intended to lead to consolidation in an industry, and the reduction of overcapacity (think for instance of Daimler & Chrysler). Sometimes acquisitions enable a number of companies to join forces, and benefit from some shared operations while remaining relatively autonomous (think for instance of Johnston Press, buying scores of local newspapers). Other acquisitions are intended as some form of substitute R&D (e.g. Cisco buying scores of entrepreneurial companies in Silicon Valley). Some acquisitions enable a firm to gain access to a new product or geographical market (e.g. Heineken buying local breweries), while yet others have to do with blurring industry boundaries (e.g. the various industry conglomerates, such as Viacom).* Thinking that you could just all treat them the same way seems a tit naïve.

Now, it is of course true that, in all cases, you should “have a good communication plan”, “integrate carefully”, “make sure to not over-pay”, and so on. But this type of advice is also a bit of a motherhood; after all, the professional life of a consultant (or Strategy Professor) recommending to “integrate poorly”, “make sure you over-pay” and “have an appalling communication plan” would likely be swiftly truncated.

So what can you recommend? Well, first make sure that you understand what type of acquisition you’re engaged in or, put differently, exactly why you are considering buying the company. What is it that is supposed to create all this surplus value? Once you have figured that one out, you might be able to deduce what can or needs to be preserved in the company, what needs to be integrated and what can be left to its own devices. Dependent on the outcome of that exercise, you can start to device a further acquisition plan including, yes, “a good communication plan”, “a careful integration approach” and “a proportionate acquisition premium”. And perhaps even a consultant.

* Based on a well-known typology from Harvard Business School Professor Joe Bower.