Four Ways Greed Blinds Owners in a Merger and Acquisition

Posted by Rock LaManna

Four Ways Greed Blinds Owners in a Merger and Acquisition

You’re probably going to bristle at my mention of the word greed.  It’s a term seldom mentioned in the business world.  After all, as Gordon Gekko once famously declared, greed is good.  But greed can also blind a printing owner to four key elements of a successful merger and acquisition.

As I mentioned, our friend Gordon Gekko might disagree.  Gekko was the corporate raider from Oliver Stone’s classic film Wall Street.  “Greed has marked the upward surge of mankind,” he notes, in this iconic speech from Wall Street.  

I don’t want to spend an entire post on semantics, but I do want to clarify the blinding greed I’m talking about.  

Gekko believes that greed has marked the upward surge of mankind, which in some cases may be true.  He may be referring to ambition, to a desire to succeed.  Or he might just be snowing a room full of stockholders.

What I want to touch on is the bad greed that kills mergers and acquisitions, and smart business moves in general.  I use the term “blinding” because I literally feel like it occludes a business owner’s vision.  Here are four examples of what I mean:


1. Greed Blinds You to the Risk of an M&A  
An insightful article appeared on by Vincent Ryan, featuring an interview with veteran deal-making CFO Jonathan Chadwick.  Involved with M&As that included Skype, McAffee and Cisco systems, I found his comments to be surprising.

Chadwick said that mergers and acquisitions should be pursued only if you’ve exhausted all your alternatives.  He calls an acquisition “a declarative move” in a specific market with a specific partner, one that limits your choices and your flexibility.

Wayne Peterson, Principal of the Black Canyon Consulting Group Inc., agrees in a terrific post in What They Think.  He also strongly advocates alliances, and also says that acquisitions should be a last resort.  “Alliances with other resources and other firms can be faster to create, much less difficult to manage, and far less risky then any acquisition.”

Sounds like they’re trying to dissuade you from pursuing an M&A, right?  They just might be.  They know that over 70% of the M&As fail because the proper strategic moves haven’t been followed.  They know that people enter into them blindly, with no idea what will be required to succeed.


2. Greed Blinds You with Misguided Hope
That may sounds a little strange, but it’s true.  Too many times organizations on both sides of the deal will overlook small problems and hope for the best.  That’s a huge blunder, as Chadwick points out.

Building your M&A strategy on hope isn’t a wise move.  Chadwick suggests asking as many difficult questions as possible, and really getting to the core strategic aim of your business.  Not the strategic aim of the acquisition, mind you, but of your business.  

“If I can’t answer the question of ‘what is our strategy as a business,’ how can you decide to spend a billion or two on your next acquisition?”

Unfortunately, greed intercedes.  The size of those big revenue projections can make even the smartest executive turn a blind-eye to glaring problems.  They cross their fingers and hope little problems won’t become big ones.  But rest assured, they will.


3. Greed Blinds You with Projections Instead of Strategy
We blog often about financials being the starting point for your strategy.  But greed gets people too focused on the big projected payouts (the wrong numbers), and they forget all the strategic alignment that needs to occur if an M&A is to be successful.  

As Peterson suggests, “Get the hard work of strategic due diligence done.  Get solid confirmation of the strategic and cultural fit.”  He advocates developing an integration plan for your customers, culture and brand – the critical components to making a transition successful.


4. Greed Blinds You to an Organization’s Culture
It’s interesting that Chadwick, whose article appears in CFO magazine, insists that the number one miscue is a failure to merge the two cultures.  That includes not only the people who are working for the organizations, but the leaders as well.

“The number-one reason I think deals fail is because there was not an agreement or a matching of cultures,” Chadwick said.  “The worst deals I’ve done is where we’ve had a separate leadership and people were talking over each other.”


Why Greed Continues to Thwart Deals

You’ve likely read some of this before.  Strategies for a successful M&A (as well as the reasons why they fail) have been well-documented.  Other executives read these articles every day, and yet they can continue to make the same mistakes every day.  Why?

I’m not a neuroscientist.  I can’t tell you why the brain works as it does.  But this does remind me of something I heard from an optometrist about what happens when people get in car accidents.  

The optometrist said that in moments of extreme stress, you will actually lose peripheral vision.  You won’t be able to see as clearly, which is why a person’s details of an accident can be fuzzy.  

To me, an executive experiences the same thing with an M&A.  Whether it’s greed, anxiety or adrenaline, they make the critical mistakes.  They know better, but they don’t do better.  They’re blinded.  

So what will you do to make sure you don’t fall victim to the same fate?


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Topics: M&A