The business news is littered with stories of failed mergers or acquisitions. Buffets Restaurant Corporation buys Ryan’s for 1 Billion dollars and is in bankruptcy in less than 18 months. Estimates of failures for mergers are that up to 90% of these deals fail. Yet companies still have an appetite for growth through mergers or acquisitions. Why? These deals look good on paper. Some work out. Benckiser and Reckitt-Colman joined forces and 2 years on the share price had doubled. It’s deals such as this one, led by the very talented Bart Becht that people remember. They remember it and assume that their deal will be equally profitable. Not often do people study what Bart and his colleagues did to make it so.
Deals can be glamorous, interesting, thrilling. They are often complimented with elaborate courtship rituals involving investment bankers and very nice dinners. Heady stuff. Don’t bore us with the messy reality of integration, please!
Before the momentum and wild overconfidence takes over, ask these five important questions:
- What do you know about the company you are considering buying or merging with?
- With reference to #1, how do you know these things? Where did this information come from?
- What do you know about the people who interact with the target company? Customers, suppliers, employees, creditors?
- What does the other party want out of this deal? I’m not talking about what they told you, rather what does your own research say?
- How easy or difficult has it been to discuss the merger?
