Many marketing professionals have never experienced a merger or acquisition. All they’ve heard are the downsides from peers – job loss, heavier workloads, confusion. What are the basics of mergers? Let’s look at mergers and acquisitions 101: why companies do it, what you should know about your own career prospects, and how to prepare.
Why do companies merge/acquire?
Companies merge/acquire for four basic reasons:
1. Acquire new products. Sometimes buy is cheaper than build, so you as the acquiring company just buy the company outright, rather than mess around with licensing deals. An example of a product acquisition would be Microsoft’s acquisition of Skype.
2. Acquire new assets. Some companies will be acquired for non-salesable assets (as opposed to products to be sold). When Southwest bought Airtran, it was speculated that this was because Southwest wanted an Atlanta hub. Alaskan Airlines buying Virgin America is another example of purchasing access to cities that Alaskan didn’t serve, or didn’t serve well. Sometimes the asset is as simple as a customer database or a media property.
3. Acquire new talent. Google is famous for doing this, such as with Jaiku. They wanted the engineers and grabbed the entire company to get them, then disposed of the parts they didn’t need.
4. Reduce operating costs or increase scale. Sometimes two companies can achieve greater efficiency or greater scale by merging. In the corporate world, this is a synergy merge. For example, Proctor & Gamble acquired Gillette not only for the product line, but also for a greater scale of manufacturing capacity and cost savings.
Companies go through mergers and acquisitions for an endgame goal of improved financial performance for shareholders. At the end of the day, more money is always the objective.
The reasons cited above aren’t mutually exclusive, either. Companies will execute mergers for multiple reasons. For example, my employer, SHIFT Communications, was acquired by NATIONAL Public Relations for all four reasons – new product offerings, new offices in the United States (NATIONAL is Canadian), new talent, and increased scale.
What happens during M&A?
Prior to a merger happening, both companies do their due diligence in examining each others’ operations and financial performance. The value of the target company is negotiated and established; if everything seems like it would work well enough, both companies sign an agreement and the merging process begins.
The acquiring company buys out enough ownership in the target company to effectively gain control over it. In publicly traded companies, this is done largely by buying shares of voting stock until the acquiring company owns a majority stake. In privately held companies, this is done by buying out owners of equity in the company from just a single sole proprietor to a team of shareholders.
Once ownership is acquired, shareholders are paid for their stake in the company and then the process of actually merging two companies together begins.
What happens to employees?
If you’re a shareholder of the target company, you get paid a cash sum or get converted shares. For example, if you were an employee of GTE that held stock in GTE back in the day, your GTE stock got converted to Verizon stock when the acquisition completed.
If you’re an employee of either company, you are effectively on notice.In order to achieve greater financial performance (which is the sole reason for M&A as stated above), you have to immediately reduce redundancies and inefficiencies. For every overlapping role in either company, one position will continue on and one or more people will be laid off. Let’s look at the human side of the four examples above.
1. Acquire new products. Everyone not tightly associated with the new products is probably getting laid off in the target company eventually. People tightly coupled to the development and support of the core product or service being purchased will be fine in the short to medium term as the acquiring company typically lacks that product expertise. Everyone else is up for renegotiation.
2. Acquire new assets. If the asset requires staffing, such as the Southwest/Airtran example (new routes in and around Atlanta mean staff to operate them), they’ll be kept. If the asset requires no staffing, such as a database, then the target company’s entire team will probably be let go.
3. Acquire new talent. If you are the target pool of talent being acquired, life is good. If you’re not, you’re being let go. In the example, Google wanted Jaiku’s team and bought them out, but likely shed everyone who was not the engineering team.
4. Reduce operating costs or increase scale. This is the messiest of mergers as people in both companies are under the gun to demonstrate why they should be kept. It’s effectively a corporate deathmatch: two employees enter, one employee leaves, and employees in the acquiring company as well as the target company are at risk.
Mergers and acquisitions’ purpose are to improve financial performance. Anything that doesn’t directly contribute to improved financial performance in either company with regards to mergers and acquisitions is up for grabs.
Also, bear in mind that there tend to be as many exceptions as rules when it comes to mergers. For every example and case I’ve cited here, you can easily name 10 cases where the consequences were different, even the desired outcome. Time Warner’s acquisition of AOL got them anything but improved financial performance, for example. Just as every personal relationship is different, so too are mergers and acquisitions.
Surviving a Merger
Plan around which of the four core reasons a merger happened. If a company is acquired for multiple reasons, the likelihood of synergies which provide you career opportunities go up. A merger simply to cut costs bodes ill for everyone. A merger for new products, new assets, and new markets means that financial performance through growth is more likely the reason, and that translates into increased opportunities to survive and thrive in the new company.
My best advice to you, as someone who has been through several mergers and acquisitions, is to document and improve your personal performance. Once a merger is announced, you are interviewing for your own job. Document everything you do with concrete metrics about how well you do it, then focus on improving the metrics you have control over. Your goal is to demonstrate your worth to your new company in concrete terms of how you help the company make money, save money, or be more efficient.
In your self-evaluation, if you struggle to document and identify things you’ve done to either help your company make money, save money, or be more efficient, your best bet is to begin your job search immediately. Brush up your LinkedIn profile, boost your personal brand, and get ahead of the crowd.
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Also published on Medium.