Mergers and beehives

When I read analysts' reports, I often wonder if we've visited the same company. Having a title like Industry Watcher gives me an inherent right, I believe,
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When I read analysts' reports, I often wonder if we've visited the same company.

Having a title like Industry Watcher gives me an inherent right, I believe, to look over others' shoulders and criticize what they do — both good and poor. It is particularly interesting to compare my own observations with those of analysts who see the corporate world rather differently, jumping straight past the beehive to the anticipated jars of honey.

I am welcomed into maybe fifty companies a year to share with them their perceived direction of travel (their road maps) and to talk in some depth about products that are coming. But when I read analysts' reports of these same companies I often wonder if we've visited the same company, the picture painted is usually so different from what I see happening in the trenches.

This overview is a privilege and a curse, but in either case my adrenalin always spikes when companies that I know well are involved in mergers and acquisitions. Three in the last year showed a good spectrum of the various situations that can happen; to protect the innocent I should say that although all the businesses are in the electronics industry, only one set is directly in broadcasting.

The first example is of a $7 billion acquisition. The cultures of the two companies were very different. One was an old player that had grown really product-smart in the last few years and was now big. The company it acquired was always run on a shoestring, but it had some talented designers and a market sense in the Far East that was brilliant. The merger was completed extremely quickly and the first fears of Goliath dominating the picture were totally squashed. Management wisely kept the larger company's original plans from dominating the picture. The best of both was retained, and the best employees were given the authority — regardless of the side of the fence they had originally been on. It was a joy to watch, and both locations are still a pleasure to visit.

The second example was not so happy. The company acquired in this case was bought as the first in a number of transactions to build up a group of related operations. The money was from suits on the East Coast. The company had been family-owned and although the transaction was only in the tens of millions, a lot of livelihoods were involved. The power vacuum when the owners left in their newly purchased luxury cars was massive. The business has moved from being quite conservative and traditional to a place where some managers now use four-letter words like commas, and where loyalties no longer exist for either management or the company direction. There is no marketing, product development is on a crawl to nowhere and sales are in the hole. Sad to watch, totally predictable, and now probably repeating in the parent company's other acquisitions.

The third example is a work in progress. A man who has an extremely short fuse runs the company that is making the acquisition; the corporate focus is totally on market perception and value, and products are announced somewhat prematurely with insufficient backup. The company being acquired in the deal (worth a couple of billion dollars) has been around for a good while and has always been run level-headedly by a man who wanted to be there. His untimely death left the company in the hands of the co-founder, who is much happier studying things through a microscope. There are all sorts of product crossovers and conflicts between the two operations, plus culture clashes galore. I see a disaster in the making.

The day this third announcement was made, a meeting was held with all the employees at the company being acquired. The new CEO made reassurances about stability, the future, common goals: all the usual material issued in these situations to hopefully keep the best employees from bailing out. It's not working — the best are already looking elsewhere in a community where they will have no problem finding an equal or better opportunity.

Many acquisitions take place with the employees kept totally in the dark until the day the deal closes; even when an announcement is made they have no opportunity to go see what is being bought. So management, the boards and the investors have to make their judgments about product lines, employee capabilities, attitudes and corporate culture based solely on the assertions of the management on the other side. That picture is always clouded over by what that group of people hope their company is really like, there in the cubicle hive.

I'd like to see more companies in merger-land listen to their worker bees, and involve them as honestly and quickly as possible. They can probably see better than their bosses what is real, what is valuable and what is junk that no one has had the courage to ditch. A clear look at those things dramatically increases the odds of a merger with a sweet conclusion, at least in one hive-watcher's opinion.

Paul McGoldrick is an industry consultant based on the West Coast.