Adolph points to Danaher as an example of a conglomerate that appears to be made up of very disparate, unrelated businesses, but which are actually linked by their conformity to the Danaher business system, a group of lean manufacturing methods and quality improvement processes that can be applied to acquisition targets. “The way they select candidates is not by high growth, high margin, an attractive market or any of that stuff, because when you see those things, you are observing where somebody else has an advantaged capability system,” noted Adolph. “Danaher selects targets based on [fitting] with their capabilities system.” As a result of this tightly focused approach to acquisition, Danaher’s M&A program has helped raise its share price by a factor of 15 over a 16-year period, during which it made 31 transactions.
The bottom line? Clarity and specificity from the start is critical, Adolph said. “If people come to you with vague words like attractive market and synergy, best practices and all of these kinds of things that you cannot reduce to leverage and enhancement, chances are you’re being dragged into a bit of an acquisition trap that might not play out the way you want.” Tad Mitchell, CEO of WellRight, a maker of corporate wellness software, agreed that knowing precisely why you’re making a buy and staying focused on that end goal, can smooth integration, even when the companies don’t seem to have all that much in common. He recalled selling Compliance11, a compliance software company, to Charles Schwab in 2011, merging a technology company with a financial services firm.
“Instead of running it like a software company, they run it more like a value-added service for their advisors,” he said. “They still have 95 percent of the people working there three years later, and it’s growing. They’ve added more people to the business.”
Value Is a Two-Way Street
Maximizing capabilities can go both ways in a merger, noted Marc Robinson, senior executive advisor at Strategy&, who recounted the Pfizer takeover of his then-company, Warner Lambert. At the time, Pfizer’s consumer business was about $500 million and Warner Lambert’s was $2.5 billion. “So it was kind of a reverse merger,” noted Robinson. “The CEO was very explicit. He said, ‘We don’t know what we’re doing in consumer. You have a very well-oiled machine in terms of marketing capabilities. You have to use our infrastructure and backbone, but otherwise impart your learnings and your knowledge on us.’”
On the pharmaceutical [side], it was just the opposite, with Pfizer leading the charge and working to absorb Warner Lambert. Robinson, who ran the consumer business, worked closely with his counterpart on the Pfizer consumer side to deliver a clear message from the top. “We knew the marching orders. We set the tone, we communicated constantly, and it worked really, really well. Had it not been for that direction upfront, for the clarity of where the capabilities were going to be applied, it would have failed.”
Robinson admitted that he and many of his Warner Lambert colleagues were skeptical of the merger at the time. “But it turned into a great acquisition. It really brought a lot of value to Pfizer.” Decisiveness made all the difference, Robinson added, because the desire to win over the new company often leads to too much conciliatory kumbaya and not enough authoritative leadership.
“There has to be a clear, conscious delineation of when directive leadership will be applied and when it won’t. I’ve seen business leaders bend over backwards trying to be so collaborative and welcoming that the clarity of communication and decision-making isn’t set. From my experience, people would rather get clear communication with some rationale. Even if they disagree, they can at least say, ‘All right, I know what to do. I understand the direction.’”