36 argues that acquisitions trigger fear and anxiety among employees in the target firm and that these emotions can torpedo efforts to realize benefits from the deal.
Leadership and communication. As adept public speakers know, it is not merely what you say, but also how you say it, that counts. Differences in expression are some of the most subtle and powerful ways in which conduct can intervene in the realization of outcomes. Communication issues permeate the deal process. This book addresses them in numerous areas, including ethics (Chapter 2), deal search (Chapter 7), due diligence (Chapter 8), accounting (Chapter 16), social issues (Chapter 24), disclosure to markets (Chapter 27), negotiation (Chapter 30), auctions (Chapter 31), hostile takeovers (Chapters 32 and 33), the presentation of proposals (Chapter 35), postmerger integration (Chapter 36), and the leadership of the deal process (Chapter 37).
Managing the deal development process. A special perspective of this book is an emphasis on the importance of good process as one of the key drivers of good outcomes. Best practitioners make deal management into a strategic capability. Process lends discipline to one’s thinking, fights the psychological trap of deal frenzy, and helps to motivate the creative search for solutions to thorny problems. How one might structure good M&A process is the subject of discussion in chapters on deal search (7), due diligence (8), valuation (9), deal development (25), negotiation (30), communication (35), and best practice (38).
The final element of the structure-conduct-outcomes framework is outcomes, the whole point of the M&A effort. Quite simply, this could be measured in terms of the fulfillment of one’s intentions for doing the deal. The thoughtful practitioner will benchmark the deal’s outcomes against at least seven measures:
1 Creation of market value. As Chapter 9 suggests, one needs to think like an investor, which means harnessing the perspective of the providers of capital. The creation of market value is measured straightforwardly by the change in share values, net of changes in the stock market.
2 Financial stability. Some of the saddest M&A deals are those that, rather than making the buyer stronger, actually destabilize it. In most of these cases, the buyer overreaches its financial capacity. Financial stability can be measured by changes in debt ratings, default risk, or other measures of financial capacity outlined in Chapters 13 and 20.
3 Improved strategic position. Many M&A transactions are motivated by a strategic purpose that seeks to improve the firm’s competitive position, acquire new capabilities, improve agility, or obtain resources that are vital to future prosperity. Chapter 6 sketches these considerations. Also, many deals respond directly to turbulent forces in the firm’s environment—these are surveyed in Chapters 4 and 5.
4 Organizational strength. Knitting together two firms is especially challenging from an organizational perspective. Most CEOs would agree with the old slogan “People are our most important asset.” Chapters 36 and 37 survey what this might mean in practice. In essence, one could measure organizational strength in terms of depth of talent and leadership, effectiveness of business processes, and the transmission of culture and values.
5 Enhanced “brand.” The deal should improve the reputation of the acquirer and its deal architects. Usually, the realization of these other aims will do just that. But one can imagine deals that depend on acrimony, subterfuge, and win-lose mentality—in a world of repeated play, the executive must consider how these qualities might affect one’s M&A success in future deals.
6 Observance of the letter and spirit of ethical norms and laws. You can gain financial, organizational, and strategic objectives in M&A, but in ways that violate norms such as equity, duty, honesty, and lawful observance. After the corporate scandals of recent years, any assessment of outcomes would be incomplete without consideration of laws (Chapters 25 through 29) and ethics (Chapter 2).
7 Improved process. The process orientation of this book emphasizes the importance of learning from each deal. As illustrated in Chapter 37, good practitioners try to capture the lessons of each deal in an effort to accumulate an improvement of practice for the next time around. This is the way a firm turns mere skills into truly strategic capabilities.
Exhibit 1.2 summarizes the success framework for M&A. It suggests that one must first assess the structure of the business environment and deal opportunity. The structure will suggest the outlines of a deal design. Next, the thoughtful practitioner must tailor a deal development process and conduct the process in ways that achieve an attractive outcome. In other words, Exhibit 1.2 summarizes a way for practitioners to organize and execute good deal development. Think of Exhibit 1.2 as a bull’s-eye target, useful for practicing your aim at various points in the merger process. The balance of this book adds the details.
SEVEN DISRUPTIVE IDEAS WORTHY OF BEST PRACTITIONERS
This book advises business practitioners and students about the best ways to analyze, design, and implement mergers and acquisitions. The “best,” of course, are always moving targets. Therefore, students of best practices can never rest. In the marketplace for ideas, the tried-and-true notions are constantly being elbowed aside by disruptive new ideas that reshape the landscape. This book sketches that jockeying: It aims to synthesize the enduring and upstart ideas into a comprehensive perspective on best practice in M&A. While many of these ideas originated in academia, the book emphasizes their practical application—hence, the name Applied Mergers and Acquisitions. This book heralds seven important ideas that have received scant attention in M&A practice. Yet they yield valuable insights. I highlight them because they have the capacity to disrupt conventional practice.
EXHIBIT 1.2 Drivers of Success in M&A
1 A deal is a system. This presentation discusses the
