Anatomy of a Merger

Those of you who have read Freund’s seminal book would know better that a Merger is a workable compromise that is intended to satisfy all parties in the transaction while simultaneously trying to get better off the adversaries to the deal.

This would look rather like an objective function that is like an oxymoron while the least that you can expect is an outcome that leaves you with a feeling of a Winner’s Curse.

A Merger is most often triggered by competitive forces than by the internal need; to find a fit that looked most improbable and that too with an adversary has its pitfalls all the way.

The real action however is Post Deal, when individuals and people must act in concert to a goal, which can hardly be assembled by the self-interests of all kinds. Post Deal scenario can hardly be constructed Pre-deal as the unknowns are too many and a simplistic modeling of combinations do precious little to the dilemma posed by agents and their interests.

One is treading into the unknown while preparing with known theorems; some hypotheses and their alternatives can be tested at best, but could hardly be relied upon as values and culture could pave the way for unknown variables at play.

Deal making as in a merger moves from simple positions of interests to the more vital substantive issues, the show stoppers, while both sides remain as much in concert as much adversarial till they achieve what the highest common factor ordains as opposed to their individual single factors.

It is fascinating that a combined entity could be very different to the individual entities as the market changes in tandem with the combination; the net present value of future cash flows better factor in the changed dynamics rather than relying on the old market equations and this is where many successful mergers have done better to focus on value than on costs.

The real value of a merger is as much in the cost synergies as in the inescapable value equation at the market place where brands would be re-evaluated and re-priced differently. Successful mergers work in advance to the Post Deal market, redefining the shape of the pie.

But again there is a very thin line that you treading on, by trying to be different too early would leave you with losses as neglecting an identity that you have polished for years lie deep in the minds of people with whom you have transacted.

This is where the identity of a business with all its facets must face the biggest challenge; by clinging to this identity there is as much to gain as to lose. Many Mergers work out a plan to exist in many identities, there is no clear winner in this strategy.

 

The customers must not be confused in the whole process as the value of a brand is simply what the customers believe as its worth, although it may be a financial number arrived at by complicated modeling. The worth of a product or service is built around experiences and memories that cannot be wished away so easily.

The promise of a brand at the end is just that simple story that a customer keeps in his memory, some small good act, trust and faith is what would count at the end.

Merger is likely to change all this, no business can remain multi-directional at the end, it is too much to expect from individuals to handle too many complex alternatives. For simplicity’s sake one road is better than treading on various roads, that road could well be a different one from the one where you could be most comfortable walking on.

Competition is the other dark pool which is never the same and new alliances are always in the making. The construct of a perfect competition hinges on the benefits of re-grouping with new strategies; the pie will never remain the same.

The future is perfectly inestimable, the least that we can achieve is taking a probabilistic curve rather than a deterministic straitjacket; the latter could look very promising while the former could give you some room to maneuver as unknowns rule the roost.

What needs to be done will be done, a defensive merger to an offensive alliance could lead to many alternatives; the task at hand should start with acknowledging the simple truth that the sum of individual good may not lead to greater collective good.