The 5 Most Dangerous Words in M&A

Like it or not – M&A is both a spectator sport and a highly secretive one.

The whole dance is shrouded in mystery and non-disclosure or “confidentiality” agreements ranging from one page to volumes.

Very often as a buyer, the person you most want to talk to or sound out about an issue is the last person you can actually risk talking to. “Plausible deniability” is the only true secrecy in a market where silence speaks volumes and how a person dodges a question simply means the questions is rephrased and pitched more accurately again and again.

It’s frustrating as hell for line managers who think they know the background to Company X better than anyone (they’ve probably interviewed every pissed off manager from there for the past 5 years or even worked there in the past) to be excluded precisely because they know so much.

But the biggest asset in M&A negotiation is trust, and the biggest risk for a buyer is being perceived as a raider or poacher (of information, know-how or staff). It is immensely frustrating for the deal makers, as just when they need their best rifle – they have to go back to slings and arrows.

So when I say that the most dangerous words in M&A are not “confidentiality” or even “trust” – you may be amazed. But they are quite simply:

“How hard can it be...”

Every time I hear these gems, I know the game has gone south.

Line managers will say: “ I could have told them that this was a basket case before they started throwing millions around – what does it take for this firm to trust its own staff – S’truth - how hard can it be to send an email...”

Directors, and even quite experienced ones will say: “ ABC Ltd is a peach of a company – you just need to ring them up and get the offer process going. We need a stronger pipe line now for Goodness sake – pick up the bloody phone...how hard can it be...”

Chairmen will say: “It’s a simple “tuck in” for God’s sake – get it done within 3 months – how hard can it be?”

The simple truth is that “nothing is impossible to people who don’t have to do it”.

This applies as much to line directors as it does to spreadsheet jockeys and bankers.

M&A prospecting looks easy – but it isn’t. Integrating a business “foisted” on you is tough – but if this is the perception, the ball has already been dropped.

Acquisitions, even simple tuck ins, are aspirational. By definition they bring some market share, competence or capability that you don’t already have.

The art of the process is keeping all of the players on-side – and especially your own team.

The “not invented here” syndrome, and especially its flip side - the “who’s the daddy now” syndrome – are the evil spawn of “how hard can it be”.

The real managers are those who can bury their egos, shrug off perceived slights and make the aspirational deals a reality. In compliance markets the record here is not good, and integrations have typically been poor or even disastrous. With a new crop of deals being integrated as we speak - let's hope the 5 most dangerous words and especially their "evil spawn" are under control for once.

2 relevant anecdotes:
1. Chairman summons Director following £5m shortfall revealed post acquisition. Director expecting the sack is told "why the hell would I sack you when I've just spent £5m on your education?"
2. Chairwoman asks director excluded from the big deal to a meeting after the announcement and before the director can resign or offload his tirade, the chair intecedes. She asks whether she had guaged his assesment of the prospect as well she'd hoped he would have done. Her benchmark for pricing was the market's (her job), but she hoped he'd trained her ("now the student is the master") well enough in this sector to get it right.