Deal Magic Potion


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.

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

The Scent of a Brand

When do powerful small brands outweigh powerful large brands?

CFO Magazine recently featured an interview with Gordon Stetz, CFO of McCormick & Co., the spice and flavorings company. The article featured a picture of Stetz seated in a grocery store aisle, his head barely visible amid the sea of his company’s famous brands.

The stated message of the piece is about McCormick’s three-part strategy for acquisitions, a sensible approach about which more here: CFO Magazine. What caught The Merger Verger was the unstated message of the photograph, the visual evidence of the company’s branding strategy post-acquisition.

Now, McCormick dates its history back to 1889 and its red and blue “Mc” logo is recognizable in every supermarket, McCormick logoconvenience store and bodega across the land.  Success like that often leads companies to a kind of ego-driven branding myopia.  “We are the great and powerful _______.”  (Fill in the blank.)  “We have the market power; everyone knows us; the value of our brand will add so much to these little guys.”

What bull.

The picture of Stetz tells a thousand words about McCormick: we buy brands because of their power not merely Jambalayabecause of ours.  If you purchased names like Zatarain’s or Lawry’s or Old Bay Seasoning and had to bring them into the fold of your huge and powerful uber brand, what would you do?

One of the toughest decisions a business person faces is the one to not do something bold.  We are bred for boldness, steeped in a culture of advancement, rewarded for our actions.  What idea is there that cannot benefit from our improvements?

In such a culture – magnified by the immense time pressures of integration – it takes both courage and objectivity to say, “No, I think we should just stay the course on this one.”

Is your integration process at risk of rushing headlong into failure?  Keep in mind the important step that McCormick seems to have mastered: stop and smell the fines herbes.

Afterword: “stay the course” does not mean “do nothing.” As a powerful, branded acquirer, there can be any number of actions to leverage a newly acquired smaller brand while leaving that name intact.  But those actions are all subordinate to the larger strategic objective of retaining the basic value that your company paid so much to obtain.