Wednesday, September 5, 2012

The Art and Science of M&A

Welcome to!

We begin this blog for several reasons.  First and foremost, we are excited about the topic of mergers and acquisitions.  We’ve spent most of our adult lives pursing the topic, one of us as an academic, one as a practitioner.  We both firmly believe that mergers involve an art and a science.  The art comes from an intuitive understanding of what works and what doesn’t.  It is the creative genius that makes a good deal great and an impossible deal successful.  The science comes from observation and analysis, from a solid understanding of the theory of finance and a belief that empirical evidence is important.

Both the Art and the Science are crucial to success in acquisitions and both depend heavily on one another.  Without a grasp of the science, the art is an unstructured seat of the pants journey.  This may be fine in the world of paintings where one canvas is easily discarded for the next.  It is fatal in the world of mergers and acquisitions, where markets are unforgiving and errors are quickly capitalized into price.  Do-over’s come at a very high cost when selling one company or buying another.

Science without art is a rigid mechanical process that can miss the creative opportunities for greater synergies.  At it’s worst it implies rigid adherence to the rules without realizing when they don’t apply or can be bent. 

The connecting link between the art and science of mergers involves experience.  Nothing is so valuable or so costly as personal experience.  But as professionals, we need not limit ourselves to personal experience.  The Science of M&A involves large-scale empirical analyses of all aspects of mergers.  Fortunately, there are hundreds of empirical analyses already existing and more being created each day.

Just a few of the questions addressed in the empirical literature regarding M&A include:
  • ·      What are the valid motives for mergers from the shareholders point of view? 
  • ·      What techniques create the most value in a deal? 
  • ·      Which attributes are associated with failed deals? 
  • ·      What form of financing is best for creating value? 
  • ·      What determines the percentage bid premium offered to the owners of a company?
  • ·      What determines the market reaction to a bid announcement? 
  • ·      What role does management and the board play in the success or failure of a deal? 

The point is that we need not limit ourselves to our own personal experience.  The evidence of thousands of deals is already available for our understanding.  

Moreover, this evidence is expanding daily.  New techniques are constantly being devised.  New strategies are constantly being employed.  Techniques and laws like poison pills, and modern state anti-takeover amendments were unknown until the 1980’s.   Termination fees and collar transactions became prevalent even more recently.  The financial crisis of the last few years has engendered even more creative techniques. 

The Science and the Art continually evolve.  To get the most from our deals, we need to stay current, to listen and to evaluate.  We hope this blog creates a forum of interest for all those interested in mergers and acquisitions.  We’d like to see it become a resource and a whiteboard for the open exchange of ideas.  We hope our blogs are the catalyst for new ideas - for the sharing of examples and counter examples – for the challenging of best practices and the illustration of what works best.

 The combined experience of our audience is the greatest resource.  Thanks for being part of our journey.  Our next blog: 14 Keys to Acquisition Success

Joe and Ralph

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