1817
n
Making far-reaching decisions
reduction of over-capacity (think for instance of Daimler and
Chrysler). Sometimes acquisitions enable a number of companies
to join forces, and benet from some shared operations while
remaining relatively autonomous (think for instance of Johnston
Press, buying scores of local newspapers). Other acquisitions are
intended as some form of substitute R&D (e.g., Cisco buying
scores of entrepreneurial companies in Silicon Valley). Some
acquisitions enable a rm to gain access to a new product or
geographical market (e.g., Heineken buying local breweries),
while yet others have to do with blurring industry boundaries
(e.g., the various industry conglomerates, such as Viacom).
Thinking that you could just treat them all the same way seems
a bit naïve.
Now, it is of course true that, in all cases, you should “have a
good communication plan”, “integrate carefully”, “make sure
to not over-pay”, and so on. But this type of advice is also a bit
of a motherhood; after all, the professional life of a consultant
(or strategy professor) recommending companies to “integrate
poorly”, “make sure you over-pay” and “have an appalling
communication plan” would likely be swiftly truncated.
So what can you recommend? Well, rst make sure that you
understand what type of acquisition you’re engaged in or, put
differently, exactly why you are considering buying the company.
What is it that is supposed to create all this surplus value? Once
you have gured that one out, you might be able to deduce what
can or needs to be preserved in the company, what needs to be
integrated and what can be left to its own devices. Dependent
on the outcome of that exercise, you can start to devise a further
acquisition plan including, yes, a good communication plan, a
careful integration approach, and a proportionate acquisition
premium. And perhaps even a consultant.
Not all trouble is really trouble
While we are still on the topic of acquisitions, let me tell you
another true story. Some time ago I was talking to a CEO
Business Exposed182
regarding an acquisition his company had just done. The topic of
“integration trouble” came up, and he said, “I’ve gured out how
to avoid all such trouble; I just always quickly and completely
assimilate the whole thing.” And indeed, after acquiring the
company he immediately merged it with the rest of the rm,
spreading out all the new people across different departments
and ofces.
Shortly after that, I was talking to an executive (in charge of
M&A) at another company, regarding “integration trouble”. He
said, “I’ve gured out how to avoid all such trouble; you simply
have to leave them alone, and not meddle in.” And that was what
he did with his acquisitions; he bought them, but subsequently
left them completely autonomous in all aspects of the business.
But who is right, and who is wrong? Hey, I am feeling in a
positive mood: I am sure they’re both right. Well . . . and both
wrong . . .
Both strategies, indeed, usually manage to avoid severe integration
tensions. Yet, they also prevent value creation. In order to create
extra value, beyond the original two companies’ worth, some
form of integration will have to take place; otherwise you’re just
owning the two companies like any shareholder owns stock (you
just happen to have bought it at a very high price!). Similarly,
completely assimilating both units will destroy any potential for
value creation, since you’re eliminating all differences between
the companies; simply increasing the scale of an organization
will seldom result in much extra value. The differences you have
just eliminated or ignored are the very source of the potential
value that you need – at least to make the deal worth its while
(i.e., its premium).
When Novartis, for example, was created out of the merger of
Ciba–Geigy and Sandoz, subsequent CEO Daniel Vasella explicitly
set up an integration program to create a new organization,
which in many respects was entirely different from anything
either of the companies had before. This approach doubled the
company’s value in about a year. Similarly, Igor Landau, former
chairman of the merged pharmaceutical rm Aventis, said, “The
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