The Imperfections Of Acquistions

The Imperfections Of Acquistions

800 371 Kamal Karanth

I was close to tears when I first learnt about the acquisition by Microsoft of LinkedIn despite the fact that I am a paid user for both Microsoft and LinkedIn and like them for different reasons. Did I also contribute to LinkedIn’s valuation by extensive usage in the last 7 years? Perhaps yes! But that is not what draws the emotion. Every time I read about an acquisition or merger, I feel uneasy about them. Blame it on my own personal baggage. I grew up reading history and mythology where kings and countries won over weaker kingdoms and countries by invasion and force, drafting one sided treaties and deals favoring the more powerful. In my view, modern era acquisitions are similar invasions done with more sophistication and monetary power with Wall Street also cheering on the side. I have experienced this first hand and been part of companies, which were acquired. More than the economics of the deals, I must say I am miffed with the human dynamics of acquisitions and hope LinkedIn, my so far favourite social site, gets it right!

There are always stated synergies when two companies come together in a merger. There are significant economic outputs which makes it great for founders, large shareholders and many senior staff who gain financially through their stocks. I am sure in LinkedIn’s case many employees who owned the stock must have finally felt good after the stock had gone down not too long ago. I am sure in LinkedIn’s case, many employees owning stock would also have benefited when stock prices rose with news of the acquisition, given that the stock prices had dipped to an all-time low not long ago. I want this to be one of the great acquisitions of the decade, but I cannot help remind myself of many other acquisitions that have had similar promise but failed to deliver.

Some common statements made during most acquisitions which fail to be actioned are:

  • Both CEOs stating how the merger is synergistic and the independence of acquired company is to be retained (only to see the acquired CEO and some of his senior staff to leave in no time with hefty payouts)
  • The advantage for customers that promises benefits to both companies (did somebody ask the customer if they ever had a choice in this?)
  • The new company will drive innovation with the new found synergy (only for the acquired company to be abandoned in few years’ time)

However, the logic of both companies having the same value system, which should make the merger work many a times, is stretched too far. In any acquisition, there is an acquirer and the acquired. In simple terms, here is somebody who sold and somebody who bought! We all buy and sell every day, so let us agree that we are quite familiar with the dynamics of balance of power. I would like to argue that in mergers and acquisitions the loss of power is always felt specially if you have been acquired.

I once sat across the table with our acquirers who said they had not paid for the computers and real estate, but rather paid for the people. ‘Human and intellectual capital is the core of any valuation’ they declared, only to result in the weeding out of the ‘people’ they had paid for over the next 18 months with an influx of new faces from the acquirer as replacements. It made me wonder about the veracity of the sweeping statements. Why bring in your loyalists and disprove your own words?

To me acquisitions are a maze where people get lost in the midst of gaining customers, market share, pleasing auditors and upholding shareholder interest. The amount of time senior leaders spend on compliance, consultants, and lawyers is so significant before and after announcing the deal that everything else takes a back seat. You will always hear the prompted EAs and sometimes leaders themselves saying that they are busy completing the deal. In effect they are telling you that you are less important and that people can wait. Should we say we understand as millions/billions of dollars are at stake!

I think everyone knows that the consultants coach the acquirers as well as the acquired by making extensive presentations on:

  • Well scripted town hall speeches where CEOs of each organisation display humour and camaraderie as though they were long lost friends
  • Well written FAQs for the leaders and managers to parrot out mirroring details on the acquirer’s website to the hapless employees and other interested stakeholders.
  • Senior leaders presenting to acquirers reasons why they should be retained and this is always a sales pitch for both sides showcasing their intelligence and wit.
  • Multiple wining and dining events for senior leaders perhaps to indicate the informal and approachable culture of the organisation.
  • Tips and tricks for CEOs and management of the acquired company to keep cheerful in all their public appearances in an effort to perhaps cover for their inability to create more value independently and occasionally also as a payback for their under-performing stocks

So how can acquirers show that they care about the people who come with the acquisition? I know of some professionally managed acquisitions where:

  • Senior leaders were taken into confidence by the acquirers on a one on one basis immediately after acquisition news is declared (the frontline staff constantly interact with them and look up to them)
  • Attractive retention schemes announced for top talent and why not? 🙂 You do not want to give your competitors a fertile ground to hunt and poach your talent.
  • Identified talent of the acquired organisation being posted to prominent and attractive posts after the acquisition. This is a quick win by demonstrating your eye for talent and reinforcing your commitment to the people.
  • Quick movement by acquirer to announce and execute new people development programs. After all beyond loyalties people come to work for their own growth. This can demonstrate genuine interest in people and aids to eliminate any doubt that might have been created through the act of acquisition.

Perhaps this piece may be considered to be ‘anti-acquisition’ and maybe I feel cheated that people like me who spend so much time on LinkedIn did not have a say in the process nor have gained financially!

Is it time to shift to Quora? I am sure somebody is waiting there too! Also, will Google buy Quora? 🙂

In the wave of acquisitions employees are rudderless ships who need anchoring!

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