By Robert A. Damon
M&A season is in high gear. More than $158 billion worth of deals has been announced thus far in 2013. The question is, will these deals work?
Last week we read about the proposed Office Depot (ODP)-OfficeMax (OMX) merger. Prior to that, Warren Buffet announced that Berkshire Hathaway (BRK-A) was buying Heinz (HNZ). The week before that, Dell (DELL) announced it was going private. And, Comcast (CMCSA) has taken full ownership of NBC Universal.
Because of low interest rates, the ability to create more value by extracting costs, strategic business moves and more – the time is right. All these deals look good on paper.
Some of the long-term shareholders can immediately cash in and not hang around to see if these will work out. Some have to hang on because they are not holding a long-term investment, or they are management in the deal and have a lock-up period before they can sell shares.
In any case, in the end, it is people that actually make the deals pay out in the long run. The documented history of failed mergers runs long and deep, crosses all boarders and has touched all industries.
The Long View
The fact is that mergers are not for the faint of heart. In fact, they are for the strong people.
Working through a merger is not easy. Few companies do it often. Some do it often and understand what to expect.
For example VF Corporation (VFC) has grown through acquisition. The company has famous brands including Wrangler, The North Face, Lee, Kipling and others. The management team is adept at integrating brands and teams into their fold with great success.
The same can be said for Deckers Outdoor Corporation (DECK) known for iconic brands such as UGG and Teva.
Both of these companies have practice in M&As and the ultimate integration of a brand into a corporation.
It's a People Problem
Obviously in M&A deals, companies really need to integrate systems and people, but it is often the people that are hardest to integrate. This is not because of a clash of wills – rather it is usually the tough task of creating the new culture of the combined companies.
We actually see this often in sports. Why do some players fail on one team and flourish on another. These players all have great skills and are great athletes.
We see it in business too. In working with CEOs, most are highly intelligent, articulate, dedicated and accomplished. However, the failure usually occurs in execution. We see failure to put the right people in the right jobs -- and the related failure to fix people problems in time.
In every M&A deal, the people problems are increased exponentially. Working through them takes quick decisions and non-stop action. It is why M&A deals that do pan out take time to do so.