Overworked, Under Stress
April 20, 2010
In a recent conference call, a service provider remarked how many corporations have trimmed their corporate development departments. The result, as these same companies are now looking to acquisitions for top-line growth, is that the transaction teams are stretched far too thin. This is how bad deals happen.
It's debatable whether management cares. I wrote about the misalignment of incentives in M&A last month. It's unfortunate that my deadline preceded Kraft Food's proxy statement, because that's the perfect example.
Kraft's board rewarded Irene Rosenfeld with a $26 million pay package that was 40% higher than what she made last year. One of the reasons cited was the "significant effort and the ultimate acquisition of Cadbury." It seems a little early, especially in light of the fact that Kraft's deal team overlooked a clause in Cadbury's pension, which the Financial Times reported could cost the buyer "hundreds of millions of pounds" to resolve.
I'll funnel a container of melted Cheez Whiz if Rosenfeld actually takes credit for that part of the deal.
As far as deal teams are concerned, they're getting stretched at a time when their job is tougher than ever. They're acquiring companies that have probably themselves cut staff, reworked their cost structures or taken other initiatives that may improve earnings but may or may not chase away the loyal customers who will notice.
Just because valuations are down, doesn't make M&A any easier. Multiples may be lower, but if they're set against a vitiated earnings figure, it's up to the deal team to figure that out. The C-suite should realize that signing the deal isn't what makes them look smart. It's the diligence ahead of and the follow through after that serve not only the company, but their own reputations in the long-term. It just requires some manpower and commitment to get it right.
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