Watching Mergers and Acquisitions (M&A) are important for everyone. When managed properly these 'Consolidations' increase power, and with scalability their profit and the boss's bonuses but rarely about saving the 'brand'. Coldly stating most are designed to exploit and destroy by asset stripping to release equity and pure profit under the 'synergies' illusion. While some tie-ups work for those involved, most are harmful to the employees whose efforts grew the company. We therefore need to watch for leading players who get together, for example, the power wielded by US Standard Oil which captured the whole fuels market in the 1800/1900s and required Government(s) intervention to prevent further dominance. When market and geographical dominance occurs, subversion of the economy often follows where customers and employees pay post-acquisition, and this point should concern every industry, employees, suppliers, customers and governments - as prices usually go up everywhere.
It is practical for competitors to monitor (act/react) to M&A's. While this can challenge them to drive innovation it may nearly destroy them - look at Nokia after Apple arrived. Big companies are often lethargic and too political to change, whereas smaller companies are quicker at decision-making, has lower costs and less complex structures than the larger (almost government-like) players, who are busy focusing on cost control, culture shock and lay-offs so the bosses can attain their bonuses.
Despite the Public Relations exercises, do you consider M&A as a failure where largely its customer base is reduced, employees left/leaving/made to leave, reduced finances with both company's value as subsequently less in the new company, and that is unfortunate. The most common reason is a failure between two different company cultures, increased where companies ride roughshod and reduced employee headcount, suppliers and even customers who all contributed to the company's success, to recoup their costs. This article by the 'Harvard Business Review' illustrates the point that without trust failures are very likely, although, can trust be encouraged when everyone knows it will all be ripped apart very soon?
Having spent a short time researching this, and taking a generalised non-specialist) look at some prominent websites, that list multiple failed M&As, to see what core lessons can be learned and prevent the next failure:
- Entertainment: Multiple websites identify the foresight of Disney coups, enabling them to buy up multiple brands (Pixel, Star Wars, Marvel etc.) as ideas and working with its originators/founders to capitalise to immediately pay back their money. However many failed M&As were not as great, namely 'America Online (AOL) and Time Warner Group' for $165 Billion in 2000. Then, the market collapsed with many dot-com ventures, resulting in a write-down of $100 Billion and a stock loss of $200B; Warner Bros is a completely different entity today. What did Disney do right that others did not (despite the noise from greedy shareholders); who can do it better?
- Social media: Twitter by Ellon Musk, was this a calamitous decision where $44 billion quickly dived to $8 Billion but recovered to around $40 Billion, (23 March 2024) based on the subjective term 'market value' compared to pure assets. The pain was felt by all concerned, especially the employees who were roughshod with mass redundancies and advertisers (customers) and con rebuked. This wasn't a culture clash between the two companies but rather between Musk and everyone else. What did Musk do right and wrong?
- Technology failures: Technology and patent rights are pure assets with hardware and patents (ideas) often used by competitors and customers alike. Technology M&A's are big and happen constantly although some are deemed failures by analysts (although they looked fantastic on paper). Google (software and phones) acquired Motorola (phones) at £12.5 Billion, then divested around $3 Billion, Microsoft acquired Nokia's handphones at $7.5 Billion and despite its technological resilience, people settled for the simplicity of touchscreens and a secured software system with Apple. Similar story to Blackberry albeit they had superior software protection to anyone.
- Automotive makers: Automotive car makers suffer during recessions and make excessive profits otherwise. However, bad cars leave an indelible stain on their reputation which they cannot drive away from, e.g., rust issues on most British Leyland cars, Ford pinto petrol tank disasters, DieselGate, and every recall. Technology often encourages firms to merge to make cost savings, as this is often why car makers merge e.g., share platform technology and its costs. Tie-ups achieve this, as is seen between Nissan- Renault - Mitsubishi, the Volkswagen group, Toyota and Suzuki, Fiat Chrysler and PSA Peugeot-Citroen, and soon-to-be Ford and Volkswagen with commercial/consumer vans and trucks. We have also seen the demise of the once great General Motors of USA to a tighter focused entity, and many famed luxury marque brands such as Lamborghini, Porsche, Bentley and Jaguar all gone under box-maker manufacturers. Ford bought Volvo in 1999 for $6.5 billion but had to settle for $1.5 billion when sold in 2010. However, Daimler-Benz bought Chrysler in 1998 and paid $35 Billion for a brand chequered by labour union disputes and recessions, which was eventually sold for $7.2 Billion - painful but thankfully Daimler-Benz remains a marque.
- Automotive parts suppliers: In the 80s GKN, who manufactured steel products and car bodies, set up an automotive distribution organisation to sell its components called GKN Autoparts Distribution Limited (UK). They bought other distribution factors and supply companies before focusing on defence and other large-scale manufacturing. During a recession they sold it to Partco Autoparts for about £8M in 1990, who merged with Brown Brothers, and Serck Marston before Unipart bought them for a cool £180M in 1999. During this time, many engine parts suppliers also consolidated especially in the US and Europe where at one time most famous engine brands were owned by a few companies due to constant acquisitions. However, many fell apart due to recessions and labour fights resulting in plant closures; today their landscape is geared up for aerospace, defence and electrical car components.
- Flying high or in deep water: Aerospace buyouts are designed to add technology for specific customers, and usually extract value from defence contracts rather than anything else, they are lucrative. Thales, BAE Systems, L3Harris, Raytheon, and many suppliers, to the big boys like Boeing and Airbus, Lockheed Martin, General-Dynamics, GE and Northrop Grumman to smaller players like Bombardier, Fokker and Embraer to their most excellent Vickers, Marconi and Rolls Royce etc.; each has a place in the market. However, we could include 'Military vessels' and 'Space' as separate or intertwined industries as so many suppliers occupy both spaces? Profits for both could be sky-high!
- Big pharma and farmer: The less said about how they achieve obscene profit is left to those affected by their products. However, they are valuable.
- Banking and Financial industry: So many companies are transacted to gain control of money they use to create profit. It is an evolving landscape; they can improve so many companies and their effect on people and the natural environment, but many simply choose to ignore it. The less said about how they achieve obscene profit is left to those affected by their products. However, they are still valuable as life runs on debt and profit.
Logistics and Transport providers are full of acquisitions, all the time. They are all valuable (large, small and self-employed) in keeping the economy afloat by paying Billions in taxes and employing millions of taxpayers (jobs). While the focus is to achieve bonuses for the big bosses, these companies need congratulating for their efforts as mentioned. Based on what we see, read and feel, what other lessons can be learned:
Lessons (from a non-specialist):
- Financing is often done with the owner of a company under debt, most of the above are testament to that. This increases their risk (rather than failure) if their revenues do not meet expectations, and shareholders want to be compensated e.g., those volatile shareholders and greedy owners. Coupled with high interest (loan) rates that are risk-dependent it may encourage asset stripping to make those payments and bonuses; that's why shareholders keep replacing CEO's and Chairmans. Although most companies do look for hidden debt as a main risk (which may have led to the takeover, or even refinancing).
- Failure to integrate different employee cultures and disgruntled workforce. The culture of organisations is often the last thing to consider, and when the pressure ramps up, so do challenges brought by those working there due to fears and self-protection. Successfully key drivers of employees and managers are communication and plans, genuine consideration and treatment and professionalism; people know scalability often results in job losses but how you are treated or compensated is in the best interest of the company, if you want them to work with you now and in future. How many people have been mistreated and taken vital business with them or from them in future?
- Failure to recognise the employee leaders, those who motivate from the back is also key; they can be the foundation of culture, if not self-interested.
- Failure to identify and address risks as soon as a takeover is imminent, especially the ones deliberately hidden e.g., Health & Safety and Environmental impacts and accidents, future customer claims, failing assets and equipment can cost in the future, etc.
- Failure to understand the market specialisms that made it successful: Are you buying to add to your capability or just to remove a competitor? Will they continue to plod the same path and ignore benefits or change and improve? Failure to recognise differences has seen many companies crash.
- Failure to address competition and changing consumer tastes and markets: This is a hard one to address as sometimes bosses are so distanced and focused on their vision they only follow their path e.g., AOL and Times-Warner. There are specialist and expensive organisations that assist company expansions. And many who ignored advice, where companies were bought (or sold) before an industry-wide collapse or impending recession; dot-com burst, wars, oil and fuel crises, epidemics/pandemics, and consumer trends and tastes that are difficult to predict. Today Technology such as Artificial Intelligence (AI) and Automation will replace basic tasks and jobs that have little specialism and need for multiple managers. Climate Change will also affect companies and consumers in a big way so the question is how do you manage these issues?
As I mentioned, every acquisition is a lesson to learn and improve, as are the behaviours of these companies and leaders. Universities, Private Equity and Banks can school these as they are better placed to analyse such risks and inform their clients if, their customers are willing to listen. They will still need to pay interest rates on the capital borrowed so who are they to argue how their money is made? You just need to remember the antics of Tyco, Jeffrey Epstein and Trump scandals to illustrate this point and many more.
The next article looks at the Logistics and Transport field, with the takeover and lessons learned from one I was able to watch with my own eyes, traumatic for many and successful for some. All with lessons nonetheless.
Hashtag madness: #m&a #mergers&acquisitions #finance #culture #learning #simonsinek
These observations are individual and not attributed to any organisation or person. The focus remains on sharing learning, and knowledge that drives best practices to enhance everything we do.
Global QHSE Advisor| FIIRSM, CMIOSH | BSc (Hon) Open | Organisational improvement and full-spectrum QHSE , Management strategy, Systems control and boots on-the-ground. With hints of Humour and Satire.
11moV. Wayne Solomon never write an article as long as this 😉
Global QHSE Advisor| FIIRSM, CMIOSH | BSc (Hon) Open | Organisational improvement and full-spectrum QHSE , Management strategy, Systems control and boots on-the-ground. With hints of Humour and Satire.
1yPart 2 of 3 articles can be found here: https://www.linkedin.com/pulse/panalpina-acquisition-ma-general-what-lessons-can-learned-ian-milne-4lwme/?trackingId=n2sCkLLzTVaioyVFaS0GgA%3D%3D. What lessons from both articles do you think can help make M&As successful, and less harmful to employees and consumers?
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