Excitement for a union is no predictor of what comes next
When couples marry, their union is often perceived, at the altar, as a coming together of equals – a partnership which will endure to the benefit of both. The reality, as many married folk will attest, can be very different a few years down the line, with one partner soon to be in the ascendant, and the other sent out to work.
So it is with mergers and acquisitions: true examples of blissful union are rare; the rougher variety are much more common. The “cost synergies” envisaged by the consultants cannot be released as hoped; the “revenue synergies” either do not materialize, or competition authorities seek to make sure that real choice in a marketplace is not restricted, so that withdrawal of competing products, or the raising of profits created by any withdrawal of supply, are either strangled at birth, as a term of the deal, or prove impossible to achieve in practice. Sometimes the most difficult decisions are left until last: for instance, which Chairman or CEO will stand aside. No one dares raise the matter too early, in case the deal falters on other grounds and they both survive. But when all the other details are agreed, it is too late. Most top brass are trained to recoil when they hear the tumbrils.
Much of this M&A activity is stimulated by advisers, cold calling. “Have I got a deal for you!” “Widget & Co have been asking if we could introduce them to you.” “Did you know that X Co are up for sale? Just a word to the wise”… Advisers, who may have been acting for nothing, or for peanuts, for years, normally get paid out when a deal occurs (before it actually delivers value), and so are naturally keen to see them happen from time to time. They are not then on earn-outs; they collect on the signing. Management are left to execute.