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.

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

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

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