It’s not your imagination: Mega-mergers in corporate-land
are on the upswing. According to The
Wall Street Journal, the last five months have seen
more than a dozen deals valued at more than $10-billion.
And the result is that "investors quake." The
sorry track record speaks for itself: 30% create added
shareholder value, 20% have no effect, and fully 50% destroy
value. [One can bog down in an endless debate over whether
merger-hungry companies are already in trouble and looking desperately
for an exit door—which would mean the sample of mergers
is top-heavy with doom-laden firms—but we are looking at
empirical reality, not hypotheticals or a controlled double-blind
experiment.]
Given that the M&A and consolidation trend among the AmLaw 200
has emerged as a fairly consistent theme here, can we draw any
lessons from corporate-land?
The two Bain partners who wrote the Journal article
think so, and it’s worth a read: Their thesis is that "deal
success is not random." And among the key leading
indicators of success are:
- Is management experienced in deal-making? Rookies have
poor at-bats, and "by far the worst returns accrue to companies
that do large, one-off acquisitions." - Will the acquisition strengthen the buyer’s core? Deals
with large operational overlaps tend to reinforce the resulting
firm(s), but veering off in a new direction leads to a lower
stock price (read: diminished value) two years out 75%
of the time. - Was real due diligence done? On this score, take a
look at the "masters" of deal-making, private equity investors
like Blackstone Group or SilverLake Partners. They assume
nothing, including refusing to assume they know anything about
particular businesses even in industries they know well. - Will management address integration immediately? "Bad
deals unravel during integration." Recognize that
integration must be speedy and comprehensive, and that one
and only one "cultural acquirer" will emerge—not
necessarily the buyer. - Finally, are you prepared for the unexpected? If you’re
not prepared for mid-course corrections, you may find yourself
skidding towards the guard-rail with no Plan B.
If, as I believe: (1) M&A in law-land will only
accelerate; and (2) corporate-land M&A mortality statistics are
sobering, then this is worth pondering. After all, "it’s
only business."
