Offsetting the odds of becoming an M&A failure statistic

One sign the economy is continuing its turnaround has been brought home to me in recent months, not just in the amount of new business in the pipeline, but by the fact that investment bankers have been nosing around.

One sign the economy is continuing its turnaround has been brought home to me in recent months, not just in the amount of new business in the pipeline, but by the fact that investment bankers have been nosing around.

How my boutique Chicago agency has popped onto their radar screens after 16 years of relative anonymity is a curiosity. Yet what really gives me pause is pondering the end goals and benefits of such transactions.

The statistics on the success of big-business M&As are pretty disheartening. Studies by consultants KPMG and Booz Allen Hamilton suggest that 50% to 80% of M&A deals underperform or actually kill shareholder value within the first five years. There's enough anecdotal evidence to suppose that it holds as true with smaller deals as it does for ones worth mega-bucks.

Creating a successful deal that results in long-term gain for all involved despite the short-term pain of the assimilation process requires due diligence that goes far beyond just number crunching. "Know thyself" is key to the analysis, but it's just as important to get to know your would-be acquirer. Juxtaposing pros and cons in response to some logical questions can go a long way.

  • Why do they want you? Do they want your book of business, the niche you've carved, your location (because of a longstanding presence in a city that another firm hasn't effectively penetrated), or a way of thinking that needs to be fostered in the acquiring organization? There's a real chance that you, your people, and your clients will get lost in the assimilation. If the acquisition represents an exit plan for you as the firm's owner, then perhaps this isn't a vital issue. But if you've established your own brand according to certain principles, then these considerations should make you think.

  • Why would you want them? There may be sound business reasons to entertain a discussion with a potential acquirer, not the least of which are the deeper pockets they might bring to the party. Those of us with smaller firms are aware of how cash-flow realities can cramp the ability to execute plans to achieve business growth. But just as important are the non-financial re- sources, such as experience in aligned or new specialties and the added creative thinking that could enrich your practice. These issues require serious discussion.

  • How will you fit into their culture? There's a reason why most of us heading up smaller and more entrepreneurial firms took on this challenge. I, for one, have an opinion or two about effective PR and marketing communications approaches, and I am bossy, extremely knowledgeable, rarely wrong, and, as several ex-bosses will attest, don't suffer fools gladly. In a more buttoned-down world of larger firms, with their systems, processes, dress and behavior codes, red tape, and pecking orders, the entrepreneurial personality will surely clash, offsetting many of the hoped-for benefits of the union.

  • What happens to your people? In many smaller organizations, the owner tends to feel more responsible for the staff because size has allowed the fostering of more intimate relationships. Moreover, smart owners realize that it's hard to attain success single-handedly. Because of that relationship, it's imperative that you explore how your staff's capabilities and expertise will fit into the acquiring organization, and what kinds of measures you will be able to negotiate to protect their interests and your own.

  • And how will your clients fit in? There will be some argument here, but my belief is that smaller firms are able to provide a higher level of hands-on, personalized service. (There's a reason our clients tend to refer to us internally and externally as their "PR partners.") They'd get lost in the shuffle of a larger firm because of time constraints and their smaller comparative budgets. What would the benefits of the deal be to them, how would those be communicated, and would you have the ability to live up to those promises over time?

    Nobody wants to move too fast in this sort of situation, which is why such issues need to be thought about at length. One solution might be to test-drive the relationship by creating a strategic alliance that gives both firms the credibility to go after a substantial piece of business that neither might have alone, whether for reasons of manpower, location, or of total capabilities. It's a good way for both entities to discover where the fits and disconnects might be without being stuck together forever, and to decrease the odds of another failed or underperforming marriage.

  • Sally Saville Hodge is president of Hodge Communications, a strategic PR and marketing communications firm in Chicago.

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