THE DRIVING FORCES BEHIND TOMS
I met an interesting investment banker on the plane from Melbourne to Sydney who told me about the take-over and merger game that is being played by large investment bankers around the world. It never made any sense to me when everybody knows only one in six mergers breaks even and many have lost billions off the balance sheet!
The game is all about the “transaction fees” and involves the study, by the investment bankers, in minuet detail of what are motivational factors of the key players. They end up knowing more about the private lives of the CFO, CEO, Board members, Fund managers than they would like their partner to know! Investment bankers go to the CEO and CFO with a proposed merger and acquisition deal and they often fail. The CFOs and CEOs know that these deals seldom work.
The investment bankers then go to the influential board members and the CFO and CEO have to fight it in the Board room, which they typically will win. The investment bank who has now spent $100,000s in research are not finished . They go to the fund managers, who are the major shareholders, and say “the board has lost the plot” they do not recognize the value in this deal” The Fund managers put the hard word on the Board who in turn say to the CEO and CFO. “If we do not do this deal the fund managers will change the board, but before that I will see that you go first”. The CEO says “What the hell we will do it”. The interesting part now starts. The CEO is offered a big sum to go quietly and this with the investment bankers fees are now amortized, through poorly thought out accounting principles, slowing killing combined company for years to come.
I believe the merger vehicle is totally flawed, it is set-up by those totally disinterested in its success or by those totally ignorant of the dynamics involved. In many cases the same executives, leading the charge, have often shown scant regard to understanding of their Human resources, their key asset.
The pursuit of growth through takeover or merger has made a small, select group very wealthy while diminishing the wealth of a vast number of shareholders. CFOs and controllers have a moral dilemma here and only they can decide what is appropriate. In many cases, the forces are huge to transact the takeover. This chapter explores why so many takeover and mergers, which have been based on perceived synergies and cost savings, fail, and if involved in one, why you need to move on before reality strikes.
THE TEN REASONS:
- The Synergy Calculations Are Totally Flawed
- Loss of Focus on Customers
- The Culture Clash
- There Is No Heart in a Merged Organization
- Loss of Years of Intangibles
- The Wrong Management Rises to the Top
- Salary Costs Escalate
- Human Beings Find It Hard to Conceptualize the Intangibles
- Mergers Are Seldom Done from a Position of Strength
- There Is Never Enough Time to Fully Evaluate the Target