“In many deals, people get so focused on the wedding, they forget about the marriage.”, says Huggy Rao when describing why 50% of M&A deals fail.
Despite the credit crunch and the overnight flip from seller’s to buyer’s market, M&A deals are still happening, albeit at a slower pace. Some founders I work with are contemplating if this is a good time to sell. Economics is a big part of the decision of course, but so is the cultural fit—especially if you plan to stick around post acquisition.
I shared the following excerpt from David Swensen’s Pioneering Portfolio Management with a founder contemplating this very issue. It’s a memo written by Miles Moreland, GP of Blakeney Management, to a potential acquirer. Blakeney, at that time, had been very successful managing assets in Africa and the Middle East. It’s a no-nonsense business memo written with a remarkable personal touch. The military analogy might be out of place in today’s vernacular, but it shows the acquiree’s confidence in knowing who they are and what they do, and when calling off the wedding is the best thing to do (emphasis mine).
I am afraid we are not going to go ahead with our merger. . . . Blakeney is a small group of guerrillas. Our success comes from our ability to fight and forage in places too small and too risky for people with more to lose. That is also what makes it such an exhilarating place to work. We are focused completely on getting and doing business with no thought for our supply lines or on whose territory we are trespassing. [Your firm] is a big and powerful uniformed army. Thanks to you it has retained its entrepreneurial spirit more than any other large American firm but that is like saying that the parachute troops are more entrepreneurial than the tank battalions. Big firms by their nature need disciplines and chains of command. Their sheer size means that when they venture overseas they build complex relationships with other powers in other lands who speak the same language. . . .
Guerrillas cannot be integrated into the regular army without losing what it is that makes them effective. All the professionals at Blakeney have previously been officers in the regular army and have deserted to join the guerrillas. It is the thought that you personally are a guerrilla at heart that has made us go on with the negotiations despite the warning signs. If we ask ourselves how will this deal help us do more and better business, and how will it make our lives more interesting and more fun, we cannot find an answer. Everything points in the opposite direction. This is no criticism of [your firm] or the excellent people we have gotten to know there. It is the reality of forming an affiliation with someone as big as you. Even if we don’t have to put on uniforms we will have to run our business in a way that acknowledges the rules that are imposed on you and when we go foraging for business we will have to respect your existing alliances. We are rustlers by nature not herders. We want to make lightning raids in Zimbabwe and Ghana and Egypt while your partners . . . are holding meetings to decide . . . about how and where they are going to deploy their mighty troops. When they arrive we hope they will find a few of the local cattle are missing.
. . . I hope we can continue to do things together. All this only started because of the respect I have for you personally. I bear the blame for not realizing sooner what the implications of the deal were. At the end of the day, we might have been the majority shareholder and you the minority one, but if a majority mouse lies down with a minority elephant it is not the elephant who is going to end up as a pancake.
Swensen, David F.. Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated (pp. 258-259). Free Press.