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“There was no such thing as a fair fight. All vulnerabilities must be exploited.” — Cary Caffrey
What is the real cost of an acquisition? It is not, by any means an easy question to answer. It depends a lot on your point of view, your perspective and your side in the acquisition — but as with anything, there are some things common and some that can help both parties. I got ahead of myself, first, let’s define possible options. We are talking about two basic options, either we talk about the merger or we talk about the acquisition — basically the same thing but very different feelings involved. What is the main difference?
A merger is supposed to be a “merger of the equals”, while acquisition defines the purchase. You can tell just from this, that on the emotional side you have a huge difference between these two in essence similar deals.
“Every single time you make a merger, somebody is losing his identity. And saying something different is just rubbish.” — Carlos Ghosn
Coming from the former CEO of Nissan, and current fugitive but still a man with vast business experience, you can tell just from pure harsh of his sentence that there is some truth in his words. Somebody is definitely losing some part of his identity in this process — making that decision and living with that thought is what makes you great business development manager, CEO or partner.
Types of merger/acquisition:
Merger — easiest way to do it, boards of directors of both companies approve the combination and seek shareholder’s approval. After the merger acquired company ceases to exist and is now part of the acquiring one.
Acquisition — maybe even a simpler method but requires substantial resources. You simply acquire a majority stake in acquired firm, and you don’t even change its name nor alter its legal structure, everything stays the same except now you own it and it’s profits.
Consolidation — this way you create a new company, after all of your stockholders approve the consolidation and then receive common equity shares.
Tender Offer — a tricky one, what you do? You send your offer to purchase the outstanding stock of the target firm at some specified price directly to the shareholders, going around their management and their board of directors. In most cases id results in the merger but some acquiring companies continue to exist due to few dissenting shareholders.
Acquisition of Assets — specific case of usual bankruptcy, while companies bid for various assets of the bankrupt company.
Management Acquisition — known as MBO (management-led buyout) where company’s executives purchase a controlling stake making it private, usually with the help of financier to help fund the transaction.
Different structures of mergers:
Horizontal — a merger of companies operating in the same industry, usually a consolidation of competitors, the goal is greater market share, lower costs and economy of scale.
Vertical — a merger of companies producing different parts or services of the same supply chain. The goal is to increase synergy, cost reduction and better market position.
Congeneric — a merger of two companies operating in the same market or same sector even, and they overlap in technology, marketing, production, R&D. It makes sense for them to merge, lower the costs and gain a larger market share.
Market-extension — a merger of companies selling the same product but in different markets, the goal of this merger is to create larger businesses with larger market share and in the end if possible economy of scale.
Conglomeration — two companies working in unrelated business activities let’s say: different industries or geo-locations. Pure conglomerate would be involving two firms with nothing in common.Merger consequences analysis
Here we can talk about “impact on per-share metrics”, EPS accretion/dilution, pro forma analysis, tax considerations, etc. but none of this can help you analyze or even verse prepare for what is ahead and that is the first day as a merged company. This is a crucial moment for both parties. We can not talk about it only from the perspective of the acquired company, there is a whole lot of pressure on the buyer side also. What will new employes react like when their new CEO addresses them. What will be said, what will remain between the lines and what will only be felt but never spoken remains a mystery. It is a new CEO’s role and duty to make the transition as smooth as possible and to assure that both businesses can operate at least on the same level if not better than before.
The manager of the company being bought has a whole different set of questions on his side. His only goal should be a better version of himself.
With that being said, we can continue by explaining why is that so important? I cannot stress out how important that is, essentially to create a positive vibe around the whole deal, as his own doubts and ego being the only thing standing in a way of a good merger under the assumptions that numbers add up. His people will pick up on that positive vibe, will feel energized and motivated if they sense this coming top-down. The second most important thing is to communicate all of the information clearly. Who will be in charge of what, who is responsible for what and what are the expectations?
As with most of the things in life, balancing the expectations is one of the most important skills in life and that is done by clear communication, right questions, and simple answers.
Everyone appreciates this forward, honest and open communication even the most hardcore nay-sayers will be disarmed against a leader who speaks the truth and speaks about things, positive and negative ones, honestly. You can not get into a fight, or misunderstand this kind of leader. She can be harsh at the times, or too direct -even that can be taught and practiced, but their best intentions will always come first and will make this merger easier and nicer to everyone involved.
For the final thought:
Nothing is more important in the process of merger and acquisition than open honest communication, seeing this only as a partnership not in any other way and balancing the expectations. Turns out is all about soft skill, in the end, nothing more nothing less. Have fun, go for it.