May 18, 2009

Everything I wanted to know about approaching an M&A deal, I learned from Dating

With every economic downturn, there’s a flurry of mergers and acquisitions as a result of lowered market value, lower-tiered companies threatened to fall off the grid, and companies with a cash hoard searching for bargains.

With this in mind, it occurred to me that approaching M&A deals mirrors dating in many ways. Here are a dozen parallels I thought about. Feel free to add anything I might have missed.

1- Be wary of virgins. Most of you are probably too old to remember, but let me remind you: house of pain. If at least one of the participants has never been through an M&A deal, there’s great potential for misunderstandings and misfires. If you’re dealing with an M&A “virgin”, take your time, take the lead in communicating the plans, and watch every step of the deal. If you’re the “virgin”, educate yourself and surround yourself by trusted advisors who will guide you on what to expect.

2- Make sure you share core values. If you were raised in a hippie family and your date is from an ultra-conservative family, it makes for a good Hollywood flick, but you know in real life you have lots of work ahead of you. Make sure to evaluate the company’s corporate culture, fiscal management policies, long term strategies, and other core values that need to fit your company’s value system for a healthy deal.

3- Heed the early warning signs. Remember that guy who checked out every woman who walked through the restaurant on your second date? Sure he was cute, but you knew better. I once witnessed a deal where the acquiring company had hit a wall with lack of growth and few new products in the pipeline. The SVP of sales and marketing had quit over the weekend never to return, the CEO was under intense pressure from the board to increase top line results, and the company was on an acquisition spree. Some of the targeted companies had noticed the warning signs but went ahead with the deals anyway. Needless to say, some of those deals went south in no time. Has the company you’re considering recently lost key employees, major customers or partners? Are they playing their cards too close to their chest? Are they having trouble refreshing their product line? Have they seriously reduced their marketing and advertising activities? May be time to step back and reevaluate the situation.

4- Don’t act out of desperation. Nobody wants a desperate date around. They’ll either dump you or take advantage of you. Evaluate your internal problem areas and perform serious needs-based and strategic analysis. Sure, times are tough, but is a merger or acquisition the answer? Instead of focusing on M&A activity, your company’s collective energies may be best redirected to fixing internal problems. This will help you avoid desperate decisions and will also increase your company’s market value for a possible deal.

5- Be firm but flexible. I once sat across the lunch table from the two top principals of a private software company whose acquisition had just fallen through over 3% of the deal. It was a deal of their lifetime, but it turned out they suffered from the “virgin” syndrome outlined above, and their attorney had flexed his muscles over 3% of the deal causing the other side to walk away. Ouch!

6- Communicate, communicate, communicate. Do I really need to remind everyone what is the number one topic in couples counseling? Does each side understand the reasons the other side wants the deal? Are the long term goals aligned? What is the integration strategy? Which organizations or products lines are going to get cut? Are you going to be OK with the resulting pecking order? How do you plan to retain talent? And finally, what’s the exit strategy if things don’t work out? Prenuptials anyone?

7- Don’t be too shy to investigate thoroughly. You know how you get a sharp new understating of the person you’re dating once you meet their friends and family? Companies wear their “best suits” when approaching an M&A deal, but don’t be afraid to talk to their employees, their customers, their partners, vendors, and industry analysts who cover them. You’d be surprised what you can find out simply by asking.

8- Consider long term gains over short term excitement. We’ve all been there when fireworks go off and long term plans take a backseat to the short term euphoria. Before you hear the champaign bottles uncorking, ask yourself, is the deal going to realize your targeted combined value? Is it going to be commercially attractive? Can you live with it on a long term basis? (have I stressed the “long-term” view enough times in this blog?!)

9- Don’t drag your feet for a good catch. If the hottest credible bachelor in town approaches you, don’t act coy or dilly dally. Case in point: Microsoft and Yahoo!. Enough said.

10- Sizzle attracts, but character makes the deal. Sure, it’s exciting to have a chat with the best looking, best dressed, most charming guy in the room, but it’s usually the average looking guy who’ll go the extra mile to keep you happy and sticks with you through thick and thin. Don’t get too excited by a company’s sizzle (remember the dot-bomb days?), and likewise, don’t get turned off if a “meat and potato” company approaches you for a deal. Look under the hood. You might be surprised at what you’ll find.

11- Don’t look for the deal to fix all your problems. Unhappy with life? Financially unstable? You think a relationship will fix that? Think again. Take a hard look at your internal operations, know that your problems are yours to own, and don’t expect another company to fix all your problems. Similar to point #4: work out the issues prior to the deal, and you’re in for better rewards.

12- Don’t get too excited by cheerleaders. Your parents want grandchildren. Your friends want you to go on double dates with them. But you’re the one who’ll end up living with this guy. Investment bankers are cheering you on (heck, I would too for those commissions), your top staff is excited, everybody is on their best behavior, but does the deal make sense? Make sure your advisors and intermediaries know what they’re talking about and have your best interest in mind. Any entity with an incentive as a % of the deal should be suspect no matter how well intentioned they seem. At the end of the day, you’re the one stuck working out the kinks after the deal is closed.

Food for thought: more than 50% of M&As don’t realize significant shareholder value, closely mirroring the US divorce rate. Coincidence?

Share your thoughts.


  1. Cool post, I enjoyed this comparison. Plus, it makes sense. I would recommend management boards to read this and think each deal through before getting all excited about it.