Doug Davidoff
It should be no surprise to readers of The Fast Growth Blog that I am not a fan of mergers. Today’s latest “we’ll get stronger by merging” announcement between Merck and Schering Plough prompts today’s thoughts.
While it’s the big mergers that get the news, I’m hearing more and more of my clients (Imagine works exclusively with small and mid-sized business enterprises (SMEs)) float the idea of mergers as a way to get through the downturn in the economy). I’m hearing things like:
- “I had a conversation with one of my competitors and we got to talking about how we were dealing with the downturn. We thought, ‘Hey, why struggle when we could combine.’”
- “We’ve been thinking about how if we found a couple of companies that complement what we are doing, we’d be able to go-to-market more powerfully.”
- “You know, I’m getting frustrated working with limited resources. I’m really interested in what I could do with a ‘larger platform.’”
These all sound like logical, reasonable thoughts – worthy of consideration. They’re not. Why? Two reasons:
- Mergers rarely work. (I define “work” as after everything is said and done – do the resources (time, money and energy) that go into making the merger work produce better results than the same amount of resources going into growing the company/companies organically. Simply put, do I make more money for my resources after the merger.)
- All of the above reasons for a merger come from a position of weakness. The ideas are prompted because of frustration and struggles – not because of success and strength.
While I’m certainly over-simplifying (and possibly overstating) let me share the advice I give all of my clients who are considering a merger.
Never merge from weakness. Mergers from weakness fail 95% of the time. If you’re going to merge, only merge from strength. Mergers from strength only fail 60% of the time.
Now, I understand (and I hope you do as well) that no merger was ever undertaken where the parties merging didn’t believe it would succeed; yet most don’t. So realize, no matter how good the rationale for a merger is – the vast majority fail.
The reason mergers fail (especially for SMEs) is because they are a distraction. Making a merger work requires significant time, energy and focus to be spent on the internal areas of the company – not on the market. Additionally, if you want to find out what every weakness of a company is, merge. You’re sure to find them after the merger takes place.
Companies that are in a very strong position are capable (at times) of being distracted. Companies that are not firing on all cylinders cannot afford the distraction. They must be maniacally focused on the market – and nothing else.
Once you’re strong, feel free to consider the merger. Though my experience proves that once you get strong, executives no longer feel the “urge to merge.”