Mergers and Acquisitions

Thursday, September 13th, 2012

The proposed BAE Systems and EADS “merger” has prompted me to reflect on the impact of changes in company structure, in particular takeovers and the subsequent effect on a buying organisation. Whilst the BAE EADS fusion is far from a done deal, other mergers have not necessarily benefited customers.

When I first studied Mergers and Acquisitions in the 1990’s I was taught that some 75% of deals studied failed to add value to the acquiring companies. I suspect that that statistic has not improved greatly. The reasons for failure may be many, including the ego of the acquiring Board, incompatible management styles, the loss of the key personnel, low morale, cultural differences and unrealistic expectations.

 

The rationale for taking over another company will often focus on the benefits of combining the two resources detailing the savings in staff, costs and other operational benefits that can be achieved. An often unstated aim is the removal of competition. Sometimes the acquirer will claim that the existing management of the target company is not fully exploiting the “assets”. They can see an opportunity for raising prices.

 

The publicity given to the market is aimed at shareholders and regulators but not necessarily customers unless it is felt that they can influence the outcome.

 

A good supplier relationship is a partnership. As they say, it takes two to Tango. However the last thing you want is your partner to be taking a Quickstep to increased profits at your expense.

 

People make the buyer/supplier relationship work or not. A takeover often means existing people, leaving and new blood entering. This requires the building of new relationships which sometimes may be incompatible

 

That is why many contracts include clauses to reserving the rights of the buyer to terminate in the event of a change in status, including merger, being taken over, administration or bankruptcy.

Are you monitoring the status of your key suppliers and even if you have a clause giving you the right of termination, what then is Plan “B”.

 

If you would like to discuss your options for Plan “B” further please give me, Ray Gambell, a call on 01744 20698 or email me on r.gambell@brianfarrington.com