Factors You Must Consider Before You Go Into Partnership, Merger and Acquisition

I strong believe that you can become very wealthy through partnership, merger and acquisition. Every major corporation acquired hundreds, if not thousands of companies that helped them to become very large. They also merged with other companies to leverage their expertise.

Unfortunately, some individuals go into partnership blindly because of friendship or relationship. In fact, it is so bad that some people don’t even have any legal document that elucidate the intricacies of the partnership.

As a consultant, I have been called to help in dealing with major misunderstandings in organizations that were established by partners. The first thing I discovered from most of them is their inability to have concrete, well documented agreement before they established the organization.

In fact, I discovered in one of these organizations that the partners did not contribute equity! They said that they were brothers, and they wanted to use the partnership to help the poor among them. I couldn’t believe what I heard. How can you establish a business without money? They couldn’t answer me. Terrible!

Sometimes, companies that wants to own another company end up letting it own them. Jack Welch, the former CEO of General Electric shared this experience.

“A few years before I became CEO, I was a veteran of dozens of mergers, so I should have known better, but I was so hot to acquire a California-based semiconductor company named Intersil that I couldn’t bring myself to say no to any of their demands.

The CEO was convinced that his company was operating smoothly, and he made it perfectly clear that while he like GE’s money, he didn’t need its advice.

Before I knew what was happening in the agreement, I was kissing the guy’s rear end in every possible way. He wanted a special (oversize) compensation scheme for himself and his people, because that’s the way it was done in his industry. I said OK.

He said we couldn’t have GE people at hs planning meetings. I said OK. He said we weren’t allowed to ask his finance people to change their reporting system to match ours. I said OK.

For several years, we muddled along, “merged” with Intersil. Frequently, when we made a suggestion about how the CEO might improve his operating system–in HR, for instance–he would brush us off with, “You don’t understand this industry. Just leave us alone and you’ll get your earnings at the end of the quarter.”

It was unpleasant, to put it mildly, and far from productive. I found that I could call their headquarters for information, but unless I asked my question in exactly the right way, I would get nothing but a head fake.

GE managers stopped visiting because they were given such a cold reception. Technically, we owned the company, but for all intents and purposes, it was running the show.

Finally, we sold Intersil at break-even. The only thing we got from the deal was important lesson: don’t ever buy a company that makes you its hostage.”

If two companies are merging, there must be concrete agreement on who makes the final decision, and who has the right to do what. Otherwise, one of the companies may use the loopholes in the agreement to take full charge of the company.

Don’t go into M&A blindly. You should have experts, especially business and management consulting firm to help in the negotiations. If you want to go into partnership with your friends, you must get in touch with a consulting firm to guide you in order to prevent costly mistakes.

Consider Your Company or Personal Culture and Beliefs

One of the factors your must consider before merging, acquiring or going into partnership with people or company is personal culture or beliefs.

If your company culture centres on integrity just like General Electric, any company you are acquiring or merging with must have the same culture.

If you are going into partnership with friends, you must check if they have the same beliefs and dispositions you have. Otherwise you will go into partnership with criminals whose suggestions will definitely centre on swindling people.

The same thing happend to Jack Welch and his team when GE bought Kidder Peabody. He said, “For me, the lack of cultural fit was never more apparent than the day that the full magnitude of our problem–for lack of a better euphemism–was really hitting the fan.

It was Sunday afternoon in April 1994, and a team of GE and Kidder Peabody executives had been working around the clock since Friday evening to figure out why we had a $300 million shortfall in reported earnings.

It was already pretty clear that Kidder Peabody trader posted phantom trades, but what we needed to understand was why and how this behaviour had slipped through the bank’s controls, and just as important, its culture.

I joined the team that day to get their report, and over the next several hours we came to understand the situation and comprehend its consequences for the company.

What blew my mind was that three times during the afternoon and evening, twice in the hallway and once in the men’s room, the same thing happened. A Kidder Peabody manger on the team approached me, and with a worried look on his face, asked me in one way or another: “What’s this going to do to our bonuses this year?”

When it was all over, I swore I would never buy another company unless its values were a close match with GE’s or it could easily be brought into the GE fold.”

That is what happens when you go into partnership or M&A sheepishly. Mistakes such as this has turned friends to enemies. Many have court cases that have lasted for many years.

So, if you are planning to go into partnership with friends, or your company wants to merge or acquire other companies, our consulting firm will help you. Simply click this link bit.ly/322fxVj and tell us exactly what you want to do, and we will get back to you. You can also call 07032681154 or send an email to info@kingsuncommonwisdom.com

To order my books and audio programs, call 08064143363 or 07032681154.

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