M&A Advice You Rarely Read About

The New Yorker—my all-time favorite magazine and the one I read to steal myself away from business news—had an insightful piece about mergers and acquisitions.
 
Tucked inside the Financial Page column (June 9 & 16, 2008 issue), which focused on CBS’s recently announced acquisition of CNET Networks, were some hidden gems of advice for acquirers of companies:
 

• It is not necessary “to own a company to make money from its properties. Much of what mergers are supposed to accomplish can be achieved through partnerships and alliances.”
• Mergers “that rely more on cost cutting from such actions as combining back-office operations and eliminating redundancies than on promises of vast growth are more likely to be successful.”
• “Acquisitions of smaller, younger private companies are usually wiser than acquisitions of publicly traded firms,” where the acquirer must typically pay a steep premium to an already known public valuation.
• While acquisitions may “boost a company’s growth rate, they too often make it bigger without making it better.”

 
The article’s author, James Surowiecki, aptly quoted Warren Buffett: “Executives see the companies they acquire as handsome princes imprisoned in toads’ bodies, awaiting only the ‘managerial kiss’ to set them free. Unfortunately, most toads turn out to be as warty as they look, and magic kisses are harder to bestow than executives think.”
 
Surowiecki has written a well-received book, The Wisdom of Crowds—Why The Many Are Smarter Than The Few And How Collective Wisdom Shapes Business, Economies, Societies And Nations, which describes systematic ways to organize and aggregate the intelligence available in organizations in order to arrive at superior decisions—often better than those that individuals would make, even if they are ‘experts.’

— Roger Pondel, President, rpondel@pondel.com