Disney Eats Shark, Survives

Thrives, in fact.

The Merger Verger was looking for his Baked Alaska recipe the other day – in a fruitless attempt to impress a third-date woman friend – and what should drop out of the file labeled “recipes” but an article on Disney’s 2008 acquisition of Pixar. What ho, Malvolio!

finding-nemo-bruce

So, we provide below a few nuggets from The New York Times piece entitled, “Disney and Pixar: the Power of the Prenup.”

The worries were two-fold: that either Disney would trample Pixar’s esprit de corps … or that Pixar animators would act like spoiled brats and rebuke their new owner.

The Verger says: Respect is a two-way street. Trust is a two-way street. But in both cases someone has to go first. Disney went first and that was the key to getting the deal right: they respected the unique culture and needs of Pixar and made that respect clear in words AND in ink. It makes perfect sense to expect the acquirer to go first. (Side note: that is one of the reasons why “mergers of equals” tend to fail; neither side wants to bend first.)

[Robert A. Iger, the new chief executive at Disney] … won some early support at Pixar by talking candidly and clearly about the [unpleasant] lessons he learned when his previous employer, the ABC television network, endured two takeovers.

The Verger notes: As the leader of the buyer, Mr. Iger knew that he had to convince the unconvinced. He used candor and psugarcoatersonal experience and he did NOT sugar coat it. If your target’s people are smart enough to do something that you want to have, then the chances are good that they’re also smart enough to see through sugar coating.

Don’t do it.

Mr. Iger also agreed to an explicit list of guidelines for protecting Pixar’s creative culture. For instance, Pixar employees were able to keep their relatively plentiful health benefits and were not forced to sign employment contracts. [He] even stipulated that the sign on Pixar’s front gate would remain unchanged.

The Verger notes: While the extent Disney went to may be over the top for industrial companies, for creative companies and service businesses it may not be. Keeping good people is in the details: health plans and signage; Disney even let the Pixar folks keep email addresses with the Pixar name rather than converting them to Disney.com. It’s the little things that evidence to people that you will do right when the big things arise. And this: Iger made a written contract about what he was going to do and not do; but he didn’t make his “new underlings” do the same.

And finally:Elena D'Amario / PARSONS DANCE

The key to successful integration, analysts say, has been Mr. Iger’s decision to give incoming talent additional duties. … “If you are acquiring expertise,” he told The Times, “then dispatch your newly purchased experts into other parts of the company and let them stretch their legs.”

The Verger notes: how better to let your new people know that you value their wisdom and their creativity than to put it to use on a bigger stage?

Obviously there’s some risk of professional dilution in letting people loose on too many projects, but giving acquired staff an opportunity to soar right when they are at their most worried can go a long way towards ensuring that your best talent doesn’t suddenly become your competition’s best talent.

About the art:

Top: Finding Nemo, courtesy of Disney

Middle: DK (who cares?)

Bottom: Elena D’Amario of Parsons Dance Company (photo by Lois Greenfield)

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Four Mistakes in Mergers

The Merger Verger directs your attention to a very good article in today’s Wall Street Journal entitled “Four Mistakes Companies Make in Mergers – and How to Avoid Them,“ authored by Sydney Finkelstein, a professor at Tuck School of Business at Dartmouth College.

Dr. Finkelstein’s article is structured in a very helpful format, stating each problem clearly (with examples) and then providing a solution. How great is that? Full article available here (subscription required).

There’s enough here to look at in more detail. For example, Problem #1 is interesting: thinking that previous merger experience Loreco Louisiana smshould be the basis for a new deal. Not necessarily so, says the professor. Why? “Because each of us has a tendency to over-generalize from small sample sizes.”

A couple of quick comments, then I’ll let you get to your assigned reading:

Dr. Finkelstein suggests that integration management teams should include both experienced deal folks and fresh thinkers. A good idea. But it will require management to make sure that the new folks don’t just defer to (or get overpowered by) the “old hands.” We’ve all been in meetings where a close-minded veteran overwhelms an insightful rookie. “Well, we did it this way the last time and it worked just fine. Besides, what do you know about doing deals?” Preventing this is management’s responsibility and it’s crucial to making the very positive dynamic of the old and new work together effectively.

He also suggests that companies should capture the learning gained from each acquisition, a crucial step that is all too often dropped in the rush “to get back to work.”

But to prevent this second point from tripping over the first, it is important to record not just what is learned but also the circumstances surrounding it. When learning is enshrined in generalizations (a sample size of one, for example), i.e., without context, it will become gospel without application. And hence a prescription for failure.

Take Aways:

  • Varied experiences and perspectives are a sound foundation for an effective integration team. But make sure your forum enables each voice to be heard.
  • When making after-action revisions to your integration playbook make sure to discuss not just what you did but what the circumstances were that led you to chose that approach… and why.

About the Art:

Road map of Louisiana from the Louisiana Oil Refining Corporation, late 1920s.

CEOs: Ask These Questions First

Some while ago Forbes published a very useful little piece aimed at making sure companies were asking the right questions before they embarked on a new acquisition.  It’s short and very pithy … so worth bringing back to people’s attention.  The article is entitled Why Deals Fail and What You Can Do About It.  Highly recommended.

Cadillac Ranch BW

About the Art: Cadillac Ranch, conceived and constructed by Ant Farm, 1974.

Picking through the Year-End Commentaries

Those snappy thinkers at McKinsey wrapped up 2015 with a nice piece entitled “M&A 2015: New Highs, and a New Tone.” There are some interesting observations that warrant highlighting.

First, let’s give credit. The full McKinsey & Co. article can be found by clicking here.

Examining share price data in the days surrounding the initial announcement of deals, McKinsey found that investors in 2015 McK Ex 2continued to be neutral on large deals (as regards the buyer’s shares), which is a step up from years past when they were decidedly negative.

But The Merger Verger wants to know why and we’re given two very promising explanations:

  1. Companies are being smarter about large deals, more and more looking at them from the angle of revenue growth than cost reduction. It
    always requires an investment to reduce costs but investors appear to be saying that paying multiples over market to get those reductions perhaps isn’t the best approach.
  2. Not only are companies smarter about why to do deals but they are getting smarter about how to do them as well, as this quote from the article states quite succinctly:

“Companies may also be getting better at integration and capturing deal synergies. In our observation, the discipline, professionalism, and capabilities around integration have certainly improved.”

This warms the cockles of, you know, The Merger Verger’s heart and … under the theory of better late than never we offer the following illustration to support this post.

too soon old_570xn-333619476

(Rumor has it that the foregoing is Dutch wisdom… more advanced thinking from the folks that brought us the nutmeg, tulip manias, legal dope and the Kröller-Müller Museum.)

Integration = Change Management

Wouldn’t it be great if understanding this one factor – that integrating two businesses is at its core about managing change – were enough to make deals work?  Sadly it’s not.  Turns out that most change endeavors fail too, as illustrated in this fairly informative little video from the folks at Strategy + Business.

Click here for the video, just under five minutes long.

Change … Lost – without a map.

1929 Standard (PA)

About the Art:

1929 Road map of Pennsylvania (illustrator unknown), distributed by Standard Oil Company of Pennsylvania, a subsidiary of Standard Oil Company of New Jersey, itself one of the 34 companies that devolved from the breakup of the Standard Oil trust. Standard Oil of NJ marketed gasoline under the Esso brand, which became Exxon in the 1970s. (Author’s collection)

Deal Magic Potion

Sorry…!

Another interesting article from the folks at CFO magazine, this one from R. Neil Williams, CFO of Intuit, maker of QuickBooks, Quicken, TurboTax and other financial management tools. Intuit (Nasdaq: INTU) has done 15 acquisitions over the last two years. In his short article, Williams looks at the question, “Is there a magic potion to a successful inorganic growth strategy?”

The hags of MacbethShort answer: no … but there are keys to the process. Interestingly, having answered “no” to his own question, Williams turns immediately to the importance of strategic logic. Let the Merger Verger state that another way: he gives first priority to strategic logic, admonishing readers to be aware of (and leery towards) shiny objects that invariably come before acquisition leaders.

Pivotal Quote (wherein Williams comments on his overarching observation about deals as a means to corporate growth):

The lesson was that the most successful mergers involved [targets] that had similar culture, style and operating process. The ones that only brought economic benefit were challenged to succeed.

The Short and Sweet from the Verger:

  1. The best deals arise from a buyer’s strategic plan and they address an identified gap or shortcoming.
  2. A thorough due diligence process must include an assessment of the culture, the values and the operating mechanisms of the target company.
  3. When acquiring a company still managed by its founders/owners, make sure you and they see a common future for “their baby” under your leadership and get them really juiced about that enlarged potential.
  4. Empower your integration team to move quickly, including making rapid decisions.
  5. Determine as soon as possible the fundamental changes that you expect to make and then communicate clearly what will stay the same and what will change.

The full text of the CFO article is available by clicking here. One page, well worth reading.

If you’d like to see some of the deals that Intuit has completed over the last few years, there is good descriptive information on their website. Click here.

Final Note:

Magic potions are not a strong suit here at the Merger Verger but we can offer the following list of ingredients (sourced from an old friend).

Eye of newt, and toe of frog,

Wool of bat, and tongue of dog,

Adder’s fork, and blind-worm’s sting,

Lizard’s leg, and howlet’s wing.

You’re on your own for quantities and procedure.  Just be careful.

Higher ROI … Guaranteed!

Ha! Did The Merger Verger get your attention with that one? No, sadly, we’re not offering 1-year CDs paying 1.66666%. This is an acquisition integration forum. We’re offering wisdom here, of the stunning variety.

This one of the stunningly simple variety:

The single-most important step that a company doing an acquisition can take to make it succeed is this:

Acknowledge that merging two companies is not the same as running two companies… or even running one bigger company. It’s just not.

If you accept that premise, you will approach the integration process with more awareness and more thoroughness and your chances of success will soar. Therein lies our guarantee.

But, lo, wise Merger Verger, why is this so?Mobilgas 1960 VietNam

Because running most companies is about maintaining and optimizing existing paradigms. Merging two companies is about changing them. Very different!

M&A execution (as distinct from deal making) is about CHANGE MANAGEMENT.

In that spirit, TMV draws your attention to a fairly useful online resource that outlines and describes 33 different techniques for creating change in an organization. For each technique, the reader is given an overview, an example of the technique in action and a discussion (background, psychology, pitfalls, etc.) and links to more detail. Simple. Good. Check it out.

Change Techniques, courtesy of ChangingMinds.org

About the Art: Today’s illustration is the cover of a 1960 Mobil road map of Viet Nam.

Integrating Cultures after a Merger

Bain & Company offers a fairly interesting video on the role of culture and its integration. Worth checking out. Three minutes.  There is also a short write-up on the topic available via the same link (below).

Dale Stafford: Integrating cultures after a merger – Bain Video – Bain & Company.

From the Bain article: Culture clashes commonly cause failed mergers, yet few organizations apply the same rigor to managing and steering cultural integration that they apply to creating conventional, hard-dollar synergies.

Portobello Rd DSCN0548a

Photo: Dealmaker, Portobello Road

Processes and People at Heineken

Video

A Thanksgiving lagniappe: a very good, very short video on merging differing processes and cultures at Heineken NV.  What Heineken shows is that differing cultures can be made to enhance one another; it just takes awareness and focus.

Check it out by clicking here, courtesy of McKinsey & Co.

Thanks for alerting The Merger Verger to this video go to Riomar Capital.Thanksgiving_1861

About the art: Sketch by Alfred Waud of Thanksgiving, November 1861, in camp (of General Louis Blenker) during the U.S. Civil War. Collection of the Library of Congress

Five Questions Before Leaping

Robert Sher, a Forbes contributor and author of the book “The Feel of the Deal,” offers an extremely succinct set of questions for any senior executive considering an acquisition. They should be part of the CSEE (C-Suite Entrance Exam).

Writing in the Forbes cliff jumpingLeadership Forum, Sher sets the stage by asking this simple question:

Why is M&A success such a crap shoot?

To which he answers thus:

The sad fact is that most deals look great on paper but few organizations pay proper attention to the integration process – that is, how the deal will actually work once all the paperwork is signed.

His five key questions address the following critical issues:

  1. Management capacity
  2. Cultural compatibility
  3. Alignment with corporate strategy
  4. Purchase price and integration investment
  5. Alternative uses of the invested capital

Check out the full text of Sher’s piece here. And more on Sher here.