The Destructive Power of the Individual – Part 1

I was discussing an interesting acquisition situation the other day with a long-time business friend of mine.  She was looking at acquiring small a privately-held company in the specialty logistics space as a launching pad for a roll-up strategy. NASA STS-75Her target was a company with an amazing customer list and a stellar 40-year reputation.  It was underperforming operationally, which offered rich efficiency upside.  The owner (age 70+) was interested in retiring.

Sound fabulous?  Dig deeper.

If you are involved in executing a roll-up strategy, sooner or later you will come upon a potential target where the owner is the founder and long-time “face” of the business.  In such a case,  The Merger Verger has three words for you:

Approach with caution.

All too often in longer-lived private companies, there is no crisp line between where the owner/founder “ends” and the company he or she founded “begins.”  In my friend’s case, this situation was exacerbated by the owner’s narcissism, a condition that rendered several levels of due diligence wholly useless.

Narcissistic owners – those given to unbounded self-admiration – can cause (and in my friend’s case did cause) a host of barely detectable problems:

  • They are not team players. They will not cede any real authority or control of the business if doing so diminishes their spotlight.  This leaves subordinates untrained and under-prepared for setting strategy Love, Love...or making independent decisions.
  • They will not give credit for the sound ideas of others, resulting in a lack of initiative, inventiveness or risk taking.
  • As a corollary, they will almost never accept responsibility for mistakes on their part, which breeds low morale, individual defensiveness and high employee turnover.
  • They will not relinquish key customer relationships to subordinates as this carries too high a risk of someone else attaining “star” status.
  • To make all of that worse, the true narcissist will not admit to the foregoing failures (and the business-savvy narcissist will have sense enough to deny them).

Result?  A target with great surfaces and little real foundation, with no depth and significant ongoing performance risk once the ownership changes. Like I said: approach with caution.

Next time we’ll look at some tactics for dealing with narcissistic owners and for penetrating their protective shields in due diligence.


One thought on “The Destructive Power of the Individual – Part 1

  1. Pingback: The Destructive Power of the Individual – Part 2 | The Merger Verger

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s