What happens when the deal you’ve been banking on is pulled
“Investors should worry whenever bosses and bankers succumb to deal-fever, since so many corporate transactions end up destroying value. The latest crop has some of the tell-tale signs of danger: high ego, high price and over-confidence.”
You’re probably not surprised to hear that this is a quote from the FT…as relevant today as it was when it was written, 27th August 2010!
Over the last week or so, the prospect of non-completion for some of the M&A froth from 2015 seems to have become a distinct possibility. Whilst Honeywell may have had its proposal for marriage rejected (painful but a lot less expensive…no time or indeed interest in any kind of pre-nuptial agreement), the very real prospect of some of the larger transactions finding a regulatory hurdle which is too challenging to clear, grows as stock markets soften and premiums being paid grow.
What can we expect to hear from those left at the altar, the Miss Haversham experience in corporate life? And below the headlines, my interpretation of what may have actually transpired…!
‘We stepped away because it was no longer a good deal’
- We couldn’t agree on organisational structure and leadership roles. That plus some resistance from one of the largest shareholders created too much personal risk for the key sponsor.
- We are going to have to rapidly find a new strategic direction to fill the vacuum, justifying why an organic growth strategy is going to deliver results.
- It’s likely that even with a new organic growth direction, we’re going to have to reduce costs, re-focus the business, potentially exit non-core businesses…complex transformation without the excitement of a deal.
’After spending some time together, it’s become clear that the cultural differences between us represent a hurdle which we cannot, at this stage, overcome’
- We have realised that for all of our talk around revenue synergies, the possibility that their distribution capability will be able to sell our products turns out to be very small.
- Some of the implicit understanding (from our perspective) around who was going to take what role turns out to be less clear than we planned. That plus a major falling out between two key operational stakeholders has stopped any progress on integration in its tracks.
‘The market has moved against us and our investors have given us a clear message’
- Our trackrecord of achieving returns from M&A has caught up with us. Those vague statements about business as usual, synergies and potential returns have been shown for what they are…unsubstantiated, falsely optimistic, and without substance.
Frivolous? Tongue in cheek? Possibly…the implications are serious though and should not be ignored;
- The time taken
- The cost of advisory services (hard to re-negotiate once spent)
- The distraction for leadership and for employees (resulting in a reduction in customer service and rise in attrition levels)
and that’s without considering the potential reputational damage incurred. Buyers beware…the consequences of an unrequited transaction may have as long a lasting impact as going through with the transaction. There is no hiding place for CEOs anymore.