This posting is for the C-level executives out there who are doing (or thinking of doing) deals for their small or medium-sized businesses. It is about helping you prevent form from overshadowing substance. It is about details. PS: if details bore you permit me to humbly recommend your opting out of the deal business ASAP.
Why? Mostly because they are not written by people who run businesses; they are written by people who advise businesses.
Let’s be honest here: due diligence checklists are about the details, where God (or the devil) is. A lawyer can make a fine checklist for matters relating to corporate formation or past board meetings and the like; an accountant likewise within his or her purview.
These lists are fine with respect to ensuring that you get what you pay for. But when it comes to understanding whether a product is approaching an inflection in its growth curve or whether the production manager knows the difference between a kaizen event and a tsunami, they usually ain’t worth squat.
Don’t you just love the story from this week’s Wall Street Journal about the Morgan Stanley gagging on Smith Barney? (Click here to read; registration or subscription may be required.)
Really, how can you not love Wall Street? What industry generates more money by giving others management advice yet simply cannot manage itself? Merrill? Poof! Lehman? Poof! Drexel? Poof! Solly? Poof! Bear? Poof!
So The Merger Verger was not surprised to learn that Morgan Stanley is choking on its acquisition of Smith Barney. According to the Journal article, the process of integrating back office IT systems was more complicated than expected! How pathetic is that?
Do you know what “more complicated than expected” is code for?
“We didn’t do our homework very well beforehand.” That’s what it’s code for. More Wall Street bravado.
Word to the Wise:
When Wall Street comes calling with a great acquisition idea, if you remember nothing about that industry and its history remember this: They have no clue about the role that simple “picking and shoveling” plays in making an acquisition work, not as deal advisors, not as deal doers. Their advice is about ideas (and fees), not about the practicum of making those ideas work. Listen, they are smart guys with frequently good advice; you just have to figure out for yourself if following it can be made to work and if so how.
The illustration on the right is the “tombstone” ad from Ford’s IPO in 1956. (Click on it for a larger image.) Of the 25 “major bracket” firms listed in the ad, only two remain alive and independent today. (Ironically, Morgan Stanley does not even appear on the list, suggesting that someone there had pissed Ford off in a major way.)
One of the truly great books on Wall Street dates from 1940: Fred Schwed’s, “Where are the Customers’ Yachts?” It will make you laugh and cry!
The Merger Verger connected recently with a senior contact at J. Wiley & Sons (NYSE: JWA, JWB), a highly-regarded publisher of books and texts, dating from 1807. The company has recently closed on the $85 million acquisition of Inscape, a producer of digitally delivered training and assessment products to the business market.
The person with whom I spoke was receptive to talking about their integration process but suggested I call back in, say, three months when there would be more to report. When I pressed the matter, they said that, of course, they had an integration plan “but its execution is what is only beginning.”
You can’t always tell with remarks like; you may just not be talking to the right person. But the problem of companies seeing a deal closing date as the starting gun for integration is still surprisingly – and frustratingly – common. In the context of Wiley, it’s even more disturbing.