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Marriages and Mergers - For love or money?
When mergers and acquistions (M&A) feature in a firm's growth strategy, opportunities often include expanded services, a broader demographic footprint and financial gains to shareholders. However, when M&A opportunities emerge, otherwise savvy executives can act like hopeless romantics under Cupid’s spell. Given this phenomenon, maybe similar lessons apply to M&As as courtships and marriage.
Similarities occur when we meet someone who appeals to us and this leads to a courtship. (We source a firm to acquire with discussions of a potential merger, which leads to due diligence). Besotted and keen to impress, we overlook our beau’s personality traits that infuriate us and propose marriage followed by publically declaring our engagement. (The financial statements are favourably presented. Although each firm embraces contrasting values and cultures, risk mitigation strategies are ignored as pre-merger agreements are signed and our intentions are announced to staff, clients and the media).
With problems emerging and our pride at stake we press on believing that everything will be fine once we are married. (We have a reputation within the industry to uphold and agree to address market perceptions now and work out the details of the consolidated firm once the M&A is completed). Marriages and M&As lead to similar rates of success. Statistics indicate that as many as 50% of marriages in Australia end in divorce. Likewise, 70% of M&A’s are reported to fail at achieving the financial objectives that initiated the union. Interestingly, the reported divorce rate of arranged marriages is only 1%. We believe that is is due to careful planning by wiser and less emotive parents who consider important issues such as class, educational and financial compatibilities together with the religious beliefs of the couple.
With this in mind the odds of a successful M&A can be significantly improved when romance gives way to commercial strategies that are executed in a structured and professional manner. Achieving such outcomes requires trusted advice from a range of industry professionals, who are far less susceptible to Cupid’s spell.
Robert Wagner, Partner