Mergers & Acquisitions – You May Have More Experience Than You Think
A business acquaintance recently asked me if I had experience with mergers and acquisitions – commonly referred to in business circles as “M&A” experience. My first reaction was an honest and altruistic “no”. Of course, my answer was based on the premise that the question was posed from a strictly business perspective. Days after our conversation, I continued to think about my own business experiences, and the vast numbers of people who have been affected by an M&A situation at some level or another. As I continued to ponder and research the subject, I realized that I too had been through two M&A transactions in my life. That’s when the parallels between business M&A transactions, and getting married, struck me with amazing clarity. So, with the appropriate and respectful disclaimers to the sacred institution of marriage and the regal capitalistic principles that breed M&A opportunities, let’s have some fun with the analogy at a deeper level.
The general idea and intent behind an M&A transaction is that the whole is greater than the sum of the parts. The same can be said of a marriage of two people. Each seeks to blend their individual strengths and values through a progressive process to reach a combined value that is greater than that represented by each individual alone. Both the M&A transaction and marriage of two people follow a predictable, progressive, and parallel approach to reaching their intended outcomes. The progressive and parallel approaches of each are usually arranged as follows:
Business M&A Transaction
Marriage
General Idea
General Idea
Offer/Negotiation
Dating/Courtship
Terms
Compatibility
Close the Deal
Vows
Ego
Love
General Idea – Both the business M&A transaction and marriage have the same general purpose and intent as I mentioned above; which is to find synergies and combine the value of each to yield a greater combined value than that represented by each individual alone. To take the analogy a bit further, both have investors, an element of risk, a value component, an agreement to define the exchange and bind stakeholders.
Offer Negotiation/Dating and Courtship – The first move is usually how the next phase of the progression occurs in both the M&A transaction and in marriage. An initial tender (pun intended) offer is made or stock is purchased in the target company positioning the acquiring company with a vested position in the target company. This same type of behavior is characteristic of dating and courtship. An initial gesture is made representing a willingness to invest in a relationship to determine whether the more detailed terms and compatibility of the relationship has a longer-term potential viability.Responses can be the same in both the potential M&A and marriage at this point including acceptance, additional negotiation, or rejection. From this point, the M&A transaction begins to take ona general structure, clarity, and definition in the form of one of many flavors of mergers such as Horizontal, Vertical, Conglomeration, Purchase, or Consolidation. In the dating and courtship realm, some of the same structure begins to emerge. Considerations such as co-habitation, merging of finances, expansion through family formation, stylization through a branding of the couple’s newer joint and individual images, and a slightly deeper evaluation of habits, customs, and beliefs. Success at this stage of the process for both M&A transactions and a potential marriage opportunity, provides the basic understanding to proceed forward toward a more granular definition of the terms and compatibility of the merger opportunity.
Terms/Compatibility – After the initial offer, some negotiating, anddetermining there is a mutual interest, the next step is to begin a lengthier process of determining the exact terms under which to consummate (pun intended again) the deal/relationship. In a potential M&A transaction, this activity is where the detailed financial analysis takes place to determine the worth of each company using financial ratio analysis, discounted cash flow analysis, and financial ratings. Specific terms of exchange emerge also in forms such as cash for assets, cash for stock, or an exchange of shares. In a potential marriage, this looks more like a deeper exploration of compatibility to determine what the couple has in common or not. Religious practices and beliefs, handling of finances, children, the thermostat setting, household chores, and handling conflict are among the finite compatibility considerations where terms and expectations are explored to define the right match. The further this is defined, the clearer the understanding of the relationship becomes. This examination and definition allows both relationships to confirm how value in the relationship can be understood, optimized, and sustained.
Close/Vows – Sustaining the relationship of the M&A transaction and potential marriage into the future are thecontracts and vows. Both also have a preceding set of legal requirements before the relationship can be finalized. For example, the M&A transaction may need to be reviewed by the SEC or other regulatory agencies for approval. The potential marriage couple is generally required to obtain a license and in some cases attend certified training as a prerequisite. In the end, the contract between two companies to merge is analogous to the vows recited by two people in a marriage ceremony. Both the closing and vows represent promises to perform, and are generally based upon the results of negotiation, courtship, the specificity of contract terms, and a deeper compatibility exploration.
Ego/Love – Interestingly enough, both the M&A transaction and the potential marriage of two people have an emotional connection attached to the process. In the M&A transaction, the ego of those principally involved in the transaction may come into play and influence the outcome of the process. Likewise, in the potential marriage, love and the emotions represented therein have significant influence over the final outcome of the relationship based processes that bring two people to the alter.
Admittedly, the M&A transaction and the potential marriage of two people are incredibly more complex than a short article can thoroughly explore. Volumes have been written about each subject independent of the other. Further, I would not suggest either relationship substitute for the other’s processes and approaches, because each is best suited to its own processes and approaches. So, if you’re like me and consider yourself inexperienced at M&A, but have traveled down the path to matrimony, think again. You may have more M&A experience than you realize.
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