Continuing on M&A....

Here is a very good example on M&A gone terribly bad. It was consumated in the hay days of mid 90s when IT companies were flushed with cash and everybody dreamt big. Big enough to lose focus. It must be noted that EDS pioneered the outsourcing concept and by any measure was a great company. What happened? Technology changed and datacenters become less expensive and information more distributed. Anyway...I digress. So EDS goes and buy (oops..merges with AT Kearney, an elite consulting company). ATK played in a very different play ground than EDS was used to playing. Two different business models and two different industries. You can read in the articles below (links) to see what happened..the end result was a management buyout of ATK by its officiers. This is where the A in M&A went bad. Instead of adopting a straightforward strategy of completely assimilating ATK into EDS, it continued to dilly-dally. There would be no certainty that this complete assimilation would have worked either. The officers and principals of ATK would be left in a heart beat. Which is what happened anyway....

I have a first hand experience of the resentment ATK and senior EDSers had. I was very new to EDS than and didn't have much history. The resentment continued to fester....the culture never got integrated and merger went bad. I guess the deal makers than (A)greed to merger instead of EDS going and flatout (A)cquiring ATK. Delusions of grandeur. Dick Brown was a good leader per my personal experience. He had some really good qualities, learning from him, it continues to serve me well. I must clarify I was a frontline grunt and only occassionally communicated with him. Looking back, this deal was not fair to seasoned hardworking EDSers as well. They just didn't understand how ATK could be treated so specially and paid so handsomely.

M&A sounds fantastic but learning from two experiences, it seldom works the way its envisioned. Reverse synergies are utterly underestimated for the most part and primary reason for that is under appreciation of the effort it takes to change the culture. On the other hand Synergies are over estimated. Hey, if I were making a big deal, I wouldn't want to not dream big either. Its human nature. So if you are going to grow by Acquisition, do just that. Acquire. You approach the deal as a Merger and you will be sorry to findout that when you say "I love you", the beast will not turn into a handsome prince. Acquire, if you must, but be brutally honest about it.:

• Approach it from a conqueror's perspective. Big must buy small.
• If you integrate, do so vertically. Unless you are Jack Welch, you will have an incredibly hard time trying to manage a conglomorate culture.
  
• Treat people nicely and let them go respectfully. Unless you are willing to spend 3 years worth of their salary on them for doing nothing but integrating culturally and becoming one of you.

Here are the links to EDS-ATK story:

AT Kearney completes management buyout:

http://www.atkearney.com/main.taf?p=1,5,1,173

EDS, ex-Kearney chief settle suits:

http://chicagobusiness.com/cgi-bin/news.pl?id=11444&base=11447

EDS concludes sale of AT Kearny:

http://www.eds.com/news/news.aspx?news_id=2808

EDS AT Kearny family feud:

http://www.businessweek.com/magazine/content/03_06/b3819085.htm

This concludes my post on M&A (for now...). Sorry it took a bit to elaborate. The class on M&A was a real eye opener. If you plan to get an MBA someday, do take a class on M&A.

Cheerios!