Perspectives – Marc Cooper – March 2023

Why Mergers Need A Long Game
by CEO Marc S. Cooper

Mergers and acquisitions are high-stakes undertakings, often with considerable financial, operational and reputational risk for the acquirer. Time Warner and America Online, Kmart and Sears, Google and Motorola — the list of multibillion-dollar deals gone wrong is a long one.

Decades of case studies by business school professors and consultants often cite overpaying, cultural clashes, and sloppy execution as factors behind doomed deals. For me, the more interesting question is this: What’s the secret sauce of successful M&A, the transactions that power operational performance and enhance a company’s long-term growth potential?

In my experience, smart dealmakers view M&A as but one step in a more comprehensive strategy. Acquisitions should be conceived and structured in a thematic way, backed up by a robust integration plan that’s focused, methodical and sets out clear targets and deliverables.

In other words, M&A works best when managers have a long game. Senior executives who understand a merger’s strategic logic and synergistic potential, have a deft management touch, and hit their performance targets can discover unrealized value, savings, and scale.

Consider the remarkable run of acquisitions by LVMH Moët Hennessy Louis Vuitton. The French luxury group has spent more than $44 billion on roughly 28 acquisitions, including those of such fabled brands as Tiffany, Dior and Bulgari.

Top management at LVMH, or for that matter at the acquisitive luxury powerhouse and Gucci owner Kering, know how to create and monetize enduring high-end brands that delight their customers. These companies attract the best fashion designers, command the most coveted retail locations on high streets worldwide, and rarely deviate from their core strategy.

That kind of laser-focus also helps explain why entertainment leader Disney hit it out of the park when it acquired Star Wars franchise owner Lucasfilm and Marvel Entertainment, home to a pantheon of super heroes like Iron Man, Thor and Captain America. Staying in the lane where you have knowledge and a competitive edge is important.

It’s the radically transformative mergers that allow companies to enter new business segments that carry the most risk. While these transactions may offer chief executives a quick way to buy their way into new markets and capabilities, they often come with sizeable operational challenges and are difficult to integrate. Having a thoughtful and strategic integration plan for transactions that takes place outside of a company’s core competency is crucial for success.

Additionally, in some industries, M&A might not be as valuable of a tool for corporate strategy, optimization, and growth. From my experience in the world of investment banking, this is often the case. Creativity, talent and culture are the primary economic assets and often times cannot be replicated or “bought”. Acquiring another organization introduces a risk of diluting corporate culture and altering what you have grown.

Yet for the majority of companies, across a wide swathe of industries, M&A can be a powerful tool to realize economies of scale, diversify risk, acquire new talent and reset for faster growth rates. The role of M&A advisers is to help clients find acquisitions that make sense for their unique long game — and, just as crucially, steer clear of transactions they shouldn’t consider at all.