Making the Most of M&A Deals

What is it that separates winners from losers in M&A transactions? To get a grip on the answer, Chief Executive turned to some of the world’s top dealmakers.

In this special report we offer tips from successful dealmakers on smoothing the acquisition and integration processes. We also present two methods of quantifying the outcome of a deal, demonstrate the application of those metrics to six recent transactions and identify the takeaway for would-be acquirers. And finally, for those on the selling side of the equation, we explore the preparatory steps necessary to garner an optimum price.

Secrets of the Great Deal Makers

What is it that separates winners from losers in M&A transactions? To get a grip on the answer, Chief Executive turned to some of the world’s top dealmakers.

By and large, they all agreed the more deals you do, the better you become at it. A few clunkers along the way and a humble assessment of why they failed also sharpen one’s acumen to avoid similar pitfalls in future. Not to mention the acute need for both parties to leave the negotiating table feeling good about the transaction; otherwise one of the companies will feel like the victor’s spoils.

To divine other secrets of the great dealmakers, we sought the imparted wisdom of two former CEOs of the Year and two others leading formerly small to midsize organizations that are fast-growing, thanks to their leaders’ M&A acumen. To follow are a few highlights from the insights they offered.

Secret #1: Know The Target

It should go without saying that knowing the target company inside out is the most vital consideration before phoning the other CEO, yet many dealmakers merely kick the tires and hope. “It’s the most strategic question one must ask—‘Is this the right company for us to buy?’” says A.G. Lafley, former CEO and chairman of Procter & Gamble, who ran herd on 10 to 20 acquisitions and divestitures per year over his nine-year tenure at the top of P&G. During that period, the multinational manufacturer more than doubled its sales, as its portfolio of billion-dollar brands expanded from 10 to 22. Driving the deals was a strategic imperative to expand in the beauty, health and personal care market and exit the food and beverage, and commodity segments of household cleaning products.

“Dealmaking is akin to dating and falling in love. If you don’t think the behavior of the other party is something you can live with from a cultural point of view, you have to grit your teeth and simply say ‘No. We’re done.’” —Sandy Weill, former CEO of Citibank

Lafley says during his time at the company (he retired in 2010), P&G maintained a list of strategic acquisition targets. One of those targets was Richardson-Vicks, on the defense from a hostile bid by Unilever. “We were always interested in acquiring the Vicks brand, which fit our strategy,” he notes. “The company also was in the over=the-counter consumer health care market, which was important to us. Yet, it was the other prizes that we didn’t at first appreciate that put it over the top.”

Sandy Weill of Citibank 

Sandy Weill of Citibank

He’s referring to Pantene and Oil of Olay, two little-known beauty brands in the U.S. at the time. P&G turned Pantene into the No. 1 haircare product in the world, taking it from under $50 million in sales at deal closing to approximately $3 billion today. Oil of Olay fared equally well, rising from less than $100 million in annual sales to more than $2 billion, at present. “The secret was knowing what we wanted strategically, which in this case was to be in the consumer health and beauty care market and having an over-the-counter business,” Lafley says. “We were the ‘white knight,’ but it wasn’t like we hadn’t been thinking about Richardson-Vicks many years before.”

Secret #2: Have a “Walk-Away” Price From the Get-Go

Knowing when to get out of the game is a critical consideration, says Sandy Weill, former CEO of Citibank. “I’ve been in situations where we’ve got an agreement, and as time goes by the other side sees you getting anxious and raises the price,” he says. “You have to be disciplined at that point, and it isn’t easy. Dealmaking is akin to dating and falling in love. If you don’t think the behavior of the other party is something you can live with from a cultural point of view, you have to grit your teeth and simply say ‘No. We’re done.’”

To draw this line in the sand, Jerre Stead, CEO and chairman of IHS Inc., a global provider of market intelligence that Stead has beefed up via more than 25 acquisitions in five years, offers this advice—“Have a walk-away price from the start.” Following this counsel prevents “a potential acquisition from becoming an emotional decision,” he explains. “Set a fair and full value upfront that you know you can stand behind, and stick to it. If it’s not acceptable to all parties, be comfortable walking away from the deal.”

Secret #3: Summing Up the Other Side

On paper the numbers may add up, but how do savvy dealmakers evaluate the target’s products and services, processes, intellectual property, technology, and most importantly its leadership and senior executives?

“You’re essentially agreeing to go into business together, yet you still have to ascertain the substance of the other leader—‘Is this person someone I trust, respect, and has attributes that are consistent with my own?’” says Dave Eslick, chairman and CEO of Marsh and McLennan Agency LLC. I always ask myself, would I feel comfortable inviting this person to my house?”

Eslick has had lots of house guest in his 30 years in the insurance business. He’s presided over more than 100 acquisitions, 50 creating what is now USI Holdings, the country’s ninth largest insurance brokerage, where he served as president and CEO. His track record enticed giant broker Marsh, Marsh and McLennan Agency’s parent company, to hire him to launch and run its start-up brokerage serving the middle market. Since coming on board three years ago, Eslick has snapped up 17 small to midsize agencies worth some $300 million in annual revenue today.

Prior to signing off on these deals, Eslick toured their facilities. “I look to see how management interacts with the leader because this is likely how they would interact with me,” he explains. “I’m also trying to assess which talent drove business in past. Organic revenue growth is a great barometer of what to expect post-acquisition.”

Sandy Weill of Citibank 

A.G. Lafley, former CEO and chairman of Procter & Gamble

Secret #4: Deciding Who Gets the Job

It’s during the pre-closing planning for post-merger integration that the decision is made who will stay and who will go. “You don’t want to take a long time figuring out which person is better for a particular job,” says Sandy Weill. “Quicker decisions after the deal closes are much better than taking a long time, and making a few mistakes is better than appearing to be indecisive.”

A.G. Lafley addresses the difficult situation through a series of peer assessments. “I interviewed Gillette’s top 15 people, as did our head of HR, to determine if they fit our culture and management philosophy,” he says. “Half of them did. I did the same thing with Richardson-Vicks, and only about two executives made the cut.”

How did he make such a Solomon-like decision? “P&G is a company of principles, values and process—you either buy into them or you don’t,” he says. “Respect is a two-way street.”

Read: M&A: Preparing Your Company for Sale
Read: M&A Takeaways for Midsized Companies
Read: Adding up the Numbers: How to Measure M&A Success


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