The Imperfections Of Acquistions
15 JUN , 2016
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.