Sales Fails in M&A

In acquisitions, sales can be just plain hard.

The Merger Verger was Sails series no 1conversing earlier today with a senior sales executive at a recently acquired technology service provider and the subject of post-merger sales came up. More than half a year into this deal, major sales issues were still causing trouble, down to the level of non-existent goals and undefined bonus formulae.

Hello! Who’s in charge here?

A big part of this challenge sounds like a failure of due diligence or, if known, a set of differing practical issues that got downplayed and dismissed. They shouldn’t have. Turns out that the differences were pretty fundamental… and obvious if one looked.

Here’s the landscape: The buyer and target are in parallel lines of business. There were good revenue synergies and cross-selling potentials in the deal. The companies’ reputations and statures in the marketplace were compatible.

But…

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Hate Being Right

About a year and a half ago, The Merger Verger commented on an acquisition by a company out of Australia, Ansell Limited (ASX: ANN). In the announcement of the deal CEO Magnus Nicolin was quoted as saying the following:

The overall integration process will be a gradual one as we take time to get to know the Comasec business.

Bend Over, Mon Petit Shareholder
Bend Over, Mon Petit Shareholder

TMV’s posting was entitled “Short This Stock” because we know that a “wait and see” approach to acquisition integration is usually a prescription for disaster. So we got to wondering how that whole thing panned out for old Magnus.

Ansell’s recent financial reports have pretty vague and jolly things to say about their recent acquisitions (the largest of which was Comasec) and they don’t break out comparative data. But the point of the Merger Verger’s commentary was on the value of the stock and that picture is not so rosy. Over the 18 months since our posting, Ansell’s shares have risen approximately 10% while the S&P/ASX Health Care index has risen over 30%.

In other words, had you invested in the index instead of Ansell, you would have had less risk due to diversification and a gain three times greater.   (Yoo hoo, Magnus?)

One chart says it all (blue line = Ansell, black line = Health Care index; time horizon = 2 years to today):Ansell shares 2yr v Index

Lousy acquisition integration practices followed by lousy stock performance … cause and effect? Who knows? But an integration strategy as dumb as “wait and see” surely didn’t help.

I Told You So (She Coulda’ Said)

One of the painful truths of business is that once in a while you are right and it doesn’t become obvious until it’s triage time. Such is the case at HP, as its well-publicized acquisition of Autonomy Corp. (2011) has destroyed more shareholder value than a whole battalion of court jesters and Shakespearean fools.  How could a board of directors ignore the clear and direct advice of its CFO?  Because it had (past tense) a CEO on a mission.

And what does the board say to a CFO like Catherine Lesjak when the dust has settled? “Oh, gee, I guess you were right.  Would you mind hanging around for a while and cleaning the whole freaking mess up for us?  That would be great.”

Come on, really?

Autonomy (Oh No)

In a short but insightful article in CFO Magazine, there are some useful lessons for all of mergerdom.  The Merger Verger offers an annotated copy of the article below:

HP Finance Chief Shines amid Scandal

Dud Diligence: an Acquisition Jack-in-the-Box

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.

The Merger Verger has seen a boatload of due diligence checklists over the years and found almost all of them wanting, including some that were just pathetic.

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.

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Laugh or Cry: Morgan Stanley’s Smith Barney Mouthful

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.

Fun Facts from History:

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.)

Recommended Reading:

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!

Who’s Wily at J. Wiley?

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.

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