Archive for October, 2007

No Merger: Just Split up Merrill Lynch

Posted on Monday, 29 October 2007. Filed under: Commentary, Mergers |

Let’s take a page from the RBS / Santander / Fortis songbook:  why does an acquisition of Merrill Lynch need to be done by just one financial buyer.  Look at the assets.  There’s enough carrion in Merrill Lynch to feed a flock of banking vultures.  Add in the restructuring funds and think about the possibilities.  They all have money available right now. 

The feeding frenzy starts with the choice morsels, of course.  There’s more people piling onto the ‘fire Stan O’Neal’ bandwagen than there were tackles in Wembley Stadium on Sunday.  [Yes, for those who were not reading the sports pages during the past two weeks here in the UK, the first regular season game in American football history to be held outside of North America took place on Sunday in the new Wembley Stadium — usually the pitch reserved for another brand of football.  For the record, the New York Giants beat the Miami Dolphins 13 – 10 in a rain-soaked (this is London, of course) game.]

How does this relate to a Merrill Lynch acquisition?  The CEO is out.  Some are suggesting that the likely successors to Stan O’Neal all have built their reputations previously by doing big deals (see the The Wall Street Journal‘s M&A deal blog story entitled ‘No M&A in Merrill’s Future — For Now‘).  There is rank speculation about who could take over Merrill (see Here is the City and their article entitled ‘So Who Might Merge With / Take Over Merrill Lynch‘), with the smart money on Deutsche Bank or JP Morgan Chase.  All the deals suggested depend heavily on the CEO in charge of the acquirer — not surprising because hubris, as those who have read my blog or heard me lecture will know, is usually THE driver behind a deal, no matter what the press releases or spin doctors in Investor Relations will tell you.  But does Merrill Lynch have time to put it’s own house in order so that it can engineer the next big financial services industry deal for itself?

Is Merrills ‘too big to fail’?  This usually refers to a bank or other national asset (telecoms companies, utilities, car manufacturers) that have fallen on hard times, usually because of poor strategic decision making or maybe just bad luck.  The government then comes in with a bail-out.  Sometimes this is in the form of an engineered takeover — a possible outcome discussed for Northern Rock.  Is Merrill Lynch in the same boat as Northern Rock, or at least are they sailing the same waters?  I am not suggesting that the US government will need to step in to save the account owners in Merrill Lynch just yet, but that assets — and names — such as Merrill Lynch do not become available very often.  That’s why a break-up seems more likely to me.

Merrill’s is a franchise important enough that every major bank in the world should be tasking their Corporate Development department to take a look.  But I think some of those planners should talk to each other.  Deutsche could use the investment banking business.  UBS would love the asset management side.  Bank of NY Mellon (fresh from their own merger) or State Street could expand their service businesses.  The retail brokerage business would help either Citi or JP Morgan Chase, and they could keep the Merril Lynch name, which is most important in the retail sector.  And the possibilities go on and on and on. 

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How did you survive when your company was acquired?

Posted on Friday, 26 October 2007. Filed under: Commentary, Mergers, Personal Planning for Mergers |

We’re doing some research on how individuals survive when their company is acquired. 

Obviously, luck plays a large role.  Serendipity intervenes.  But the fact remains that there are people who get fired and others who remain.  Is there anything that people can do to be in the survivor category?

We are looking for personal stories about what works (and what doesn’t work) when you hear the rumours or news that your company will be acquired.  Please share these with us in by commenting on this page.  It would be very nice if you are able to share with us your position in the company and even the company name, but if this is not possible, the story itself will still be of help to others who might find themselves in the same situation.

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Smaller deals rather than mega deals? Look at the Serial Acquirers…

Posted on Monday, 22 October 2007. Filed under: Commentary, Mergers |

The New York Times Dealbook on M&A referenced an article from Reuters about Microsoft.  They reported that Microsoft CEO Steve Ballmer said on 18 October that they would focus on up to 20 smaller acquisitions of $50 million to $1 billion each annually rather than mega-deals, despite rumours that Microsoft has been looking at Yahoo and Facebook — clearly not ‘small’.  They reportedly have a war chest of $23 billion earmarked for acquisitions.

Is Microsoft publicly stating a change that other companies are considering?  In previous merger waves, it was the decline of the mega deals that was one of the signals of the end of the wave.  Although this may sound strange in the same month when RBS, Santander and Fortis completed their purchase of ABN Amro for almost $100 million (€70 million), it is not surprising at this point in the merger cycle.

Should this be good news for Microsoft shareholders and other large acquirers that decide to pass up mega deals for a serial acquirer strategy? 

The research in this area related to this merger wave is still being completed (and our own research conducted with and sponsored by Towers Perrin has just been finished and will be released later this year), but we do know that serial acquirers do not have a great record, despite their reputation for excellence in acquisition skill.  Nor do the acquirers of mega deals.  From our earlier research, we have found that acquirers of medium-sized deals are the most successful.  These are deals in the $400 million to $1.5 billion size — probably the ‘sweet spot’ for Microsoft in the acquisitions they would most likely make.. 

If Microsoft and the other large acquirers can avoid the temptation to make too many acquisitions, their new focus can not only be successful for themselves, but also could keep the M&A market alive. 

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Personnel Today’s Article on Surviving an M&A

Posted on Monday, 15 October 2007. Filed under: Commentary, Mergers, Personal Planning for Mergers |

With over 19,000 redundancies rumoured to be in the offing in ABN AMRO (see Here is the City and its article on ‘ABN / RBS Job Cuts’) and its acquirers following its acquisition by the Royal Bank of Scotland (RBS), Fortis and Santander, it is timely to think once again about the things that employees should do when faced with such a possibility.

Personnel Today included an article written by us in their most recent edition.  This can be found on-line on this link.  We are also including the text of that article below:

Trade secrets: surviving a merger – navigating the M&A minefield

This article first appeared in Personnel Today magazine.

It looks as though more mergers and acquisitions (M&As) will have taken place in 2007 than ever before. But two things never change about M&A deals: first, that a large number will fail to deliver what the architects of the deal promised and second, that many people will lose their jobs when companies combine – after all, who needs two heads of HR or the support team for two payroll systems?

It’s also an unfortunate fact that many of the survivors are not the best qualified or most experienced of the two internal candidates from the pre-merged companies – politics and luck have a role in who survives and an outsider may be brought in, or you may be demoted to a more junior role.

The secret of survival is not to leave it to chance. Our research at Cass Business School has uncovered some ‘tricks of the trade’ to being a survivor if your company is acquired. Even if both you and your counterpart remain, how do you make sure you’re the one on top?

There are no guarantees, of course, but there are several things you can do to improve your chances of keeping your office – or even getting a bigger one.

Get involved early

You must start early, and it’s best if you hear about it before the deal is announced (not always automatically the case when you’re in HR). Get on to the merger planning committee and ultimately the integration committee. This will give you the inside information before anyone else. You’ll know how the company will be organised, and since it is common to announce the top several layers of post-deal management right after the deal has been made public, anything done after that is actually too late.


Once you’re on those committees, you’ll begin to network with the other decision-makers, including those from the ‘other’ company who will soon be your colleagues. This makes you more valuable to the new organisation – and less likely to be made redundant – as there won’t be many who have networked well in both companies.

One caveat: don’t be so critically important to the post-merger integration team that you cannot be taken off that team to accept one of the new key management positions.

Be visible

You should also stay around the office – particularly the headquarters – as much as possible. Become as visible as you can and avoid the common tendency to keep your head down during this period. This didn’t save people from dying in the trenches in the First World War, and it doesn’t work on the battlefield of business either.

Focus on building your network, both internally and externally. You want as much intelligence about the company as possible. Remember that sometimes those external to the company – such as headhunters, consultants and suppliers – may be better placed to know what’s actually going on because they can see the wood, not just the trees.

Let everyone know what you are doing. This is not the time to be falsely modest. Encourage your external relationships to say that they work with your company because of you. If there are others in the company who can say this as well (and you’ll say it about them, too, of course), tell them to do so.

Be flexible

You will need to be willing to move or change jobs because the headquarters may change or the new organisation will need skills of a different nature (of course, when the merger integration committee writes one of the new senior management job descriptions, you’re the one person who can fit the bill perfectly).

You may want to take key members of your team with you, so keep them happy during the merger process. This has other benefits too: with all the consultants running around the company during a merger, it’s likely that your team will be asked about you.

Your team will also be a good source of information – the rumour mill is always strongest at the lowest rungs of the organisational ladder, and there’s usually some truth to every rumour.

Explore your options

But whereas you should rely on your team, don’t rely on your boss. He or she is probably looking out for number one and not you, despite what you might be told. And where’s the guarantee that your boss will be one of the survivors?

However, despite the best planning, you may still get the short end of the stick, so be sure to polish up your CV. Call the headhunters who know you. Check the appointments section of this newspaper. Know what you would want if you are made redundant, as there is often some negotiation possible on termination packages.

And hope for a little bit of luck.

The power of employment contracts and retention payments

In the late 1990s, Deutsche Bank acquired Bankers Trust, the eighth largest bank in the US. At the time of the acquisition, Deutsche Bank set aside almost $420m over three years to retain 200 key staff, many of whom had already negotiated their retention payments with Bankers Trust when it was rumoured that it would be acquired.

What’s even more interesting is that some of those staff were ‘double dipping’. In the year prior to the Deutsche Bank acquisition, Bankers Trust had acquired Alex Brown, the oldest investment bank in the US. At that time, Bankers Trust had reserved nearly $300m over three years for incentive compensation for a group of several hundred Alex Brown employees – some of whom were likely to be the same individuals getting special payments from Deutsche Bank.

Not a bad deal if you can get it, while at the same time keeping your job.

Don’t let a merger damage morale

New research by Kenexa among 10,000 US workers reaffirms the negative impact of mergers and acquisitions on employee morale.

The findings suggest that when a company is merged or acquired, employees lose confidence in its future which prompts them to consider leaving.

Comparing the data from the 1980s and 2000s, Kenexa found that job satisfaction has improved, but people are now more likely to feel insecure and consider leaving during a merger. Feelings of insecurity are exacerbated when redundancies occur, creating a profound impact on an employee’s sense of job security.

“Merger and acquisition activity creates vulnerability to talent loss,” says Jack Wiley, executive director of Kenexa Research Institute.

“To begin the healing process and ensure employees remain engaged, management must clearly state a tangible vision and plan of action. This should include accurate and timely information about the merger and its impact on the workforce,” he adds.

Tips on being a survivor

  • Think about your personal strategy early. Pay attention to any rumours you may hear – they often contain some truth.
  • Get appointed to one of the post-merger planning committees. Encourage colleagues you trust to do the same.
  • Be visible. If you don’t work in the headquarters, find excuses to visit there.
  • Make sure that people know how valuable you are. If your clients can mention your value, even better. Now’s the time to bring in new business that has been percolating for a while.
  • Rely on your team, but not your boss.
  • Network, network, network – internally and externally.
  • Don’t forget to stay in touch with all the headhunters who have been calling you for the past several years. You may need them now, despite the best personal planning.

Our Expert

Professor Scott Moeller teaches mergers and acquisitions to MBA students at Cass Business School in London. He was an investment banker for 18 years before leaving banking for academia in 2001. His book Intelligent M&A: Navigating the Mergers and Acquisitions Minefield, published in June by John Wiley, discusses this topic in more detail, as does his blog.

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The need for business intelligence in M&A

Posted on Thursday, 11 October 2007. Filed under: Business Intelligence, Commentary, Mergers |

We’ve been writing on this blog about the importance of doing deals smarter.  This is even more critical today than ever as the market becomes more difficult. 

Funding a deal with leverage is now more difficult.  The days of lending at 10x EBITDA are now over.  It is more likely that you will see figures at around 6.5x EBITDA. This decrease is significant, yet not enough to stop the well-funded hedge and private equity funds that are still awash in cash (and still raising more).  Returns will be lower, however, and some private equity houses will pause.

The Finance Director included a nice excerpt from the first chapter of our book a few weeks back.  Click here to see that excerpt, although we have copied it as well below:

The Need for Business Intelligence in M&A Decisions

Mergers and acquisitions are an integral part of the global strategic and financial business landscape. Deals, especially when hostile, cross border or among large companies, might be front-page news, yet there is a great deal of conflicting evidence as to whether they are successful or not. Scott Moeller and Chris Brady investigate.

Some M&A failures have been dramatic. The AOL-Time Warner deal lost 93% of its value during the integration period as the internet service provider merged with the publishing company in an attempt to combine content with delivery. VeriSign, another internet-related services company, lost $17bn of its 2000 $20bn acquisition of Network Solutions and its stock fell 98%.

“A full merger or acquisition should be attempted only when there is a compelling reason.”

It is not just the fallout from acquisition failures that lose money. A classic example of failure – and one where the very basic elements of business intelligence were ignored – is Quaker Oats, the food and beverage company founded in the 19th century.

In 1994, they acquired Snapple, a quirky fruit-drinks company, for approximately $1.9bn, thus becoming the third largest producer of soft drinks in the United States. Less than three years later, in 1997, Quaker Oats sold its Snapple division for just $300m.


Only following the acquisition of Snapple was it determined that the pricing and distribution methods were different for the two drinks lines and, most importantly, the cultures were incompatible. Additionally, in the quarter just prior to the acquisition, Snapple had experienced a 74% drop in sales on a year-over-year basis, a fact that was only revealed to Quaker Oats shortly before the deal was announced even though this should have been evident to even a casual industry observer.

The key word in the above paragraph is – ‘following’. It is the key identifier of an intelligence failure. The term intelligence here is defined as the use of legitimate competitive intelligence techniques. Quaker Oats had simply failed to gather the most basic intelligence in advance of the deal.

Failed deals are, unfortunately, the norm not the exception. No matter how it is measured, a fair degree of consistency has emerged in the results of studies that have examined M&A ‘success’. Well over half of all mergers and acquisitions should never have taken place and many studies have found that only 30% to 40% were successful.

The challenge for management is to reconcile the low odds of deal success with the need to incorporate acquisitions or mergers into their growth strategy. This is where an embedded intelligence function is essential.

“Intelligence is defined as the use of legitimate competitive intelligence techniques.”

Prior acquisition experience may not be a predictor of success, although some studies have shown that companies do better when making an acquisition that is similar to deals they have done previously. Here again the need for specific intelligence is central.

Studies have shown that inexperienced acquirers might inappropriately apply generalised acquisition experience to dissimilar acquisitions. VeriSign appears to have failed with its 2004 purchase of Jamba AG despite having made 17 other acquisitions in the previous six years, many in related internet businesses. Intelligence cannot, therefore, be taken for granted.


Different types of mergers and acquisitions are driven by different goals and raise different issues for the use of business intelligence.

Horizontal mergers are mergers among competitors or those in the same industry operating before the merger at the same points in the production and sales process. For example, the deal between two automotive giants, Chrysler in the US and Daimler, the maker of Mercedes cars and trucks, in Germany, was a horizontal merger. That deal, of course, was of questionable strategic value, but other horizontal mergers have been very successful: Exxon Mobil, GlaxoSmithKline, Royal Bank of Scotland (acquiring NatWest) and many others.

In horizontal mergers, the managers of one side of the deal will know a lot about the business of the other side. Intelligence may be easy to gather, not just because there will likely be employees that have moved between the two companies over time in the course of business, but the two firms will also most likely share common clients, suppliers and industry processes.

Vertical mergers are deals between buyers and sellers or a combination of firms that operate at different stages of the same industry. One such example is a merger between a supplier of data and the company controlling the means through which that information is supplied to consumers, such as the merger between Time Warner, a content-driven firm owning a number of popular magazines and AOL, the world’s largest internet portal company at the time of the deal.

There is often less common knowledge between the two companies in a vertical deal, although there may still be some small degree of shared clients and suppliers, plus some previous shared employee movement. Cultures are likely to be very different.

“Different types of mergers and acquisitions are driven by different goals.”

Conglomerate mergers take place between unrelated companies, not competitors and without a buyer / seller relationship. This type of merger was common in the past, but has fallen out of favour with shareholders and the financial markets except as practiced by some hedge funds and private equity houses. When they do occur, they can benefit greatly from the more creative uses of business intelligence. For example, detailed scenario planning involving simulations based on high-quality information can identify unforeseen issues that can drive such deals and provide a logical rationale.


M&A deals are risky. A full merger or acquisition should be attempted only when there is a compelling reason because the odds of success are so low. There’s the tendency to overpay when acquiring another company. For bidder and target alike, it is critical to use the intelligence function as an integral element of the process.

The outcome of a merger or acquisition is never pre-ordained. It is necessary to crawl carefully through the minefield, using as much intelligence as possible to avoid the potential and often very real dangers.

Edited excerpt from Chapter 1 of Intelligent M&A: Navigating the Mergers and Acquisitions Minefield by Scott Moeller and Chris Brady, published by John Wiley, 2007.

The following people contributed to this article:

  • Chris Brady, Business School Dean, Bournemouth University
  • Scott Moeller, CEO of Executive Education, Cass Business School

First published in The Finance Director on 21 September 2007

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Scenario Planning in M&A

Posted on Monday, 1 October 2007. Filed under: Business Intelligence, Commentary, Mergers, Scenario Planning |

An acquisition or merger is difficult to get right, and the other alternatives should be vigorously considered before a deal is contemplated.  Those alternatives include organic growth, strategic partnerships, joint ventures, partial ownership of the target, joint shareholdings, or even ‘doing nothing.’ 

But when acquisition or merger is necessary, it must be entered into carefully and after much consideration – not hastily or only in response to the actions of competitors.  This is a principal premise of our book, Intelligent M&A:  Navigating the Mergers and Acquisitions Minefield, and scenario planning is one very important tool that should be used.  No military planner would even consider going into battle without conducting detailed scenario plans, yet many business leaders will engage in a merger or acquisition without such planning. 

Military and business intelligence techniques can be used in an M&A deal – and not just in the due diligence stage when such techniques have traditionally been employed to uncover confidential information. 

Scenario planning should start at the very beginning when the merger is just an idea floated by the CEO, one of the planning team, or an outside advisor.  It will help to determine if the longer-term future is being properly considered, and not just – as is too often the case – the immediate future where deals are made in response to a recent and short-term change in the market.  At Shell, for example as we noted in an earlier post from May and in our book published in June, their scenario teams are tasked to ‘help charter routes across three interrelated levels:   the Jet Stream of long-term trends, uncertainties, and forces;  the Weather Systems that reflect specific features of key regions; and the Turbulence of market level factors.’  By forcing management to consider all three, they avoid making long-term decisions in response to short-term issues – turbulences.  Shell has kindly put its Jet Stream level scenarios on-line at, which benefits those companies not positioned to conduct such macro-level research themselves.

Many CEOs, especially at small and medium-sized companies, find planning a lonely activity at the top of their organization. Most of their managers and indeed the rest of the company is appropriately focused on the conduct of the day-to-day business and therefore not looking much beyond the next sale or production target.  Joint decision-making, brainstorming, and other group planning activities are a luxury unfortunately relegated to at most a few days at an annual off-site meeting.  Consultants can clearly help in this regard, but another tool – straight out of scenario planning and business intelligence – is to use the power of the bookmaker.  There can be great wisdom in the masses, especially when the people in those ‘masses’ have their own hard-earned money at stake.

Where can this be found?  Where people or companies have ‘bet’ on the future, either literally (through bookmakers) or figuratively (in hedging risks in the markets).  The former is useful if the company’s markets are affected by events where there are established betting odds continually updated, which today go well beyond whether Germany will win the next World Cup or the Yankees the World Series.  The futures markets can tell a lot about prices months and years ahead for energy and other commodities including foodstuffs (which give an idea about future weather conditions).  Risk management markets exist in some very unexpected areas affecting business.  Check out and for some examples. 

As mentioned in another earlier post on scenario planning, to give an idea of just how far these can go, consider that in 2003, a smart – but perhaps insensitive – analyst in the Pentagon proposed setting up a speculative futures market on terrorist attacks.  Nothwithstanding the obvious temptation for real terrorists to be able to financially benefit from their actions, the idea was sound.  Getting people to bet real money on future events focuses the thinking of those people, attracts those who are expert in an area and may actually know more, and saves replication of planning in multiple locations.  

Yes, there really can be wisdom in crowds.  In the right situation, of course, and selectively.  There’s danger in always following ‘conventional wisdom’ and remember that many great idea have been heckled when first proposed.  That’s where leadership comes into play – recognizing when to use the power of scenario planning and when to be ‘bold, daring, and different,’ to paraphrase Anita Roddick, the founder of Body Shop.  

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