Comments on: B to B, B in B, and the cultures of commerce

By: srp

srp — Tue, 12 Feb 2008 21:06:32 +0000

The literature hints that “merger of equals” deals, where the two companies are of similar size, go wrong more frequently than the big swallowing the small. I suspect that this is due to the coordinated expectation that the small will assimilate to the large, which simplifies things considerably.

Cisco famously developed a whole SOP for rapidly integrating small acquisitions, of which they have done a great many. Part of it, of course, is knowing what to leave alone.

Kaplan, Mitchell, and Wruck did a clinical study back in the 1990s looking at the Cooper Industries acquisition of Cameron Iron Works in 1989 and the Premarkis acquisition of Florida Tile in 1990. Neither went well. They found that the acquirers tended to overestimate the transferability of their expertise to the acquired firms’ domains, that they incorrectly applied their standard organizational designs to the new firms, and that they applied inappropriate incentive schemes to the acquired firms. Maybe there were culture issues in there as well, but I’m pretty impressed that a bunch of finance folks assessed the management issues in depth.

By: Tom Guarriello

Tom Guarriello — Tue, 12 Feb 2008 18:06:50 +0000

Over the decades, I’ve found it astounding that billions and billions of dollars have been lost while M&A teams steadfastly “run the numbers” while arrogantly refusing to “run the cultures.” In my way of thinking, not figuring out how to make sure these factors are accounted for and managed should be grounds for managerial malpractice.

By: Quotulatiousness

Quotulatiousness — Tue, 12 Feb 2008 09:32:25 +0000

Mergers

Grant McCracken muses over the not-likely-to-come-to-fruition MicroHoo merger, and finds that the evidence is that most mergers don’t work out: Mergers and acquisitions are fraught with difficulty and Mary was pointing out that the failure rate is some…

By: Ryan Holiday

Ryan Holiday — Mon, 11 Feb 2008 18:11:11 +0000

Not to mention the ridiculousness and personal conflict that make the deal itself difficult to strike. You might like Barbarians At The Gate by Bryan Burrough. One of the guys describes the process of two potentially merged companies through the analogy of a teenage relationship that everyone knows should end but can’t stop going back to each other.

By: Donald A. Coffin

Donald A. Coffin — Mon, 11 Feb 2008 17:32:17 +0000

I would point out that a lot of the “due diligence” that allegedly gets done in mergers turns out to have been poorly done. With internal pressures to make the merger look good, those doing the due diligence will generally be rewarded more for saying “Yes” than for saying “Wait a minute.” So those objective, flinty MBAs may not provide real impediments to bad mergers.

By: peter

peter — Mon, 11 Feb 2008 17:31:34 +0000

Of course, Grant, for there to be a successful merger between the M&A business and the anthropology business, the quant-jocks who run M&A would first have to take seriously the idea of culture. In my experience, most of these folks, trained as they are by reductionist economists and finance theory professors, and unable to appreciate anything they cannot directly measure, do not recognize any other force in society besides individual monetary self-interest. Culture and society simply do not exist for these folk, alas.