I spent my Sunday driving back from my parents’ farm in Southern Idaho. As I drove, I listened to a course on business strategy. One of the lessons was on mergers and acquisitions. The main point was that most of the time businesses merge or acquire other businesses for the wrong reasons and research shows that it rarely works. The lecturer said that it’s often a misguided attempt to grow.
On Monday morning, I hopped on a call with a guy named Alan who operates a similar business to mine, in the market I’m trying to enter, but who has been working there for nearly thirty years. Alan is approaching retirement and wants to see his business continue. He told me on that call that he’s interested in merging our companies.
Here’s the initial deal Alan proposed:
- His two long term employees would get equity.
- He and his partner would retain ownership of the company.
- I would take control of the business.
- Our two teams would merge.
From his perspective, he thought I would benefit with:
- Gaining his client list.
- Being able to sell and build off his established relationships and brand.
That’s not attractive to me, but we’re going to keep talking to explore if there’s a way we can both achieve our goals.
What the lecturer recommended for mergers and acquisitions was to calculate the burden of merging. He said that often managers focus on the potential upside of deals- like me focusing on what I could do with Alan’s clients or portfolio. What most folks miss is that there is a challenge and cost to merging. It takes an investment to integrate teams, systems, and resources in a way that is productive. For Alan, if we merged, I’d have to take on the history of his choices: technologies we don’t use, system differences, client choices, and etc.
It’s sort of like considering whether to marry someone and only seeing the potential of that union. If you took a closer look though, you’d realize that marriage means you’ll have to live in a house with six cats, continually clean up after a slob, and keep one eye over your shoulder for that jealous ex who will be released from prison next year.