MacFadyen: The Fixer-Upper
August 19, 2008
In the latest issue of Mergers & Acquisitions Journal, we asked the question: Can a flawless integration plan "fix" a bad deal?
For instance, a strategic buyer is chasing a particular end market or niche, and pays out the nose for a company, citing suspect synergies or a nebulous cross-selling opportunity. Ebay's Skype purchase comes immediately to mind. Is it possible that an impeccable integration strategy can somehow make that deal good again?
My gut reaction is an unequivocal "no." There is no way Ebay was going to make Skype work as a true merger other than by leaving it alone as a separate subsidiary, untouched by the parent. But under that scenario, one would have to ask, "why merge in the first place?"
Taking a deeper look at it, though, it would seem as if flawless integration can rescue bad deals. Jonathan Marino, who explored this question in the the story, "Can This Merger Be Saved?," cited the HP/Compaq deal as one example.
It's tough to argue that deal, but at the same time, it becomes a "chicken or the egg" type of question. In hindsight, a deal's backers will claim that a rescued acquisition was in fact good all along and that any initial criticism at the outset was unfounded.
For those who have no interest in M&A philosophy, I suppose the best advice is to always take a proactive approach to integration. Because even if flawless execution can't fix a bad deal, we know for certain that poor execution can sink even great deals.
As always, if you have any questions or thoughts, please don't hesitate to reach out.
Ken MacFadyen
4 Comments
From my experience, "flawless execution" (if there ever was such a thing) can never save a bad deal. A bad deal is still a bad deal. Excellent execution can only make it a "less bad" deal. For a deal to be good, it has to have revenue synergies and/or cost synergies. If the deal is bad and one or both do not exist, integrating the companies faster or cheaper will only make the bad deal lest distasteful when the revenue or cost synergies never materialize.
Posted by: DOUG B | September 19, 2008 11:59 AM
From my experience, "flawless execution" (if there ever was such a thing) can never save a bad deal. A bad deal is still a bad deal. Excellent execution can only make it a "less bad" deal. For a deal to be good, it has to have revenue synergies and/or cost synergies. If the deal is bad and one or both do not exist, integrating the companies faster or cheaper will only make the bad deal lest distasteful when the revenue or cost synergies never materialize.
Posted by: DOUG B | September 19, 2008 11:57 AM
To muddy the philosophical waters further, I would like to add that integration can be flawless and still fail to rescue a deal if the integration effort is not fully aligned to the deal strategy.
"Suspected synergies" need to be fully vetted out by strategic buyers. Draw a line in the sand by listing them, estimating their impact, and documenting the barriers to attaining them, and use that objective information for setting the guiding principles for your integration plan.
Posted by: Joanne Wortman E | August 28, 2008 10:54 AM
To muddy the philosophical waters further, I would like to add that integration can be flawless and still fail to rescue a deal if the integration effort is not fully aligned to the deal strategy.
"Suspected synergies" need to be fully vetted out by strategic buyers. Draw a line in the sand by listing them, estimating their impact, and documenting the barriers to attaining them, and use that objective information for setting the guiding principles for your integration plan.
Posted by: Joanne Wortman E | August 28, 2008 10:49 AM
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