Mergers and aquisitions: how to grow a business

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Janette:
We’re going to talk about mergers and acquisitions. Do you think that M&A is a good idea, that it’s worth doing or that it’s overrated?

Brian:
Well I think like lots of these things it’s an important toolkit that management has to grow a business. I think there are certainly plenty of cases where mergers and acquisitions have not added value when people have pursued them for the wrong reasons or have kept going for the wrong reasons. But I also think it can make a lot of sense, both for the company selling and the company buying.

Janette:
Do you think it goes wrong because people get overexcited and they pay too much or just it’s the wrong idea in the first place?

Brian:
Well I think both, there’s certainly good examples of both of those things happening. I think there’s no doubt that there’s an element of euphoria that gets going in the middle of a deal and can bring people unstuck and cause them to pay too much, and of course in a deal you have lawyers and investment bankers and others who are specifically trying to get the buyer to do that. But equally you can have misguided acquisitions in the first place where people are driven perhaps by just a simple desire to grow revenue or be seen to be growing and they go out looking for things to buy rather than thinking about where there’s genuinely a strategic fit.

Janette:
So what do you think would be good reasons for doing a merger or acquisition?

Brian:
I tend to think about it as one of two things; there needs to be an overlap, and so to me the value comes from finding a logical overlap. And by logical overlap I mean where you either have the opportunity to take cost out because you’re serving a new group of customers but you can get efficiencies from consolidating things that customers perhaps don’t see. Or where if you’re buying a produce line effectively, it’s a logical extension to selling something new to an existing customer base, and it fills in part of your offering. To a perhaps lesser extent if you want to geographically expand, and so you have a capability and you think that for good reason that that capability can work in another geography, but you decide that you need certain routes to market or something which would be too expensive to build yourself. So to me it’s got to have a really clear strategic logic along one of those dimensions.

Janette:
Would you like to end by telling me a successful merger that you’ve done?

Brian:
Well when I was in Australia we had a joint venture that had us as a minority owner of E*TRADE which was an online share broking business. And we felt that share trading was a very logical extension of the banking relationship, particularly as customers moved online. And so we made the decision to buy the rest of the company and fold it in. And we went through all the usual monkey business that one goes through with a public offer, but in the end we got a very good business that we knew very well, and I think that’s a key part. And it’s been a very successful acquisition.

Janette:
Thank you very much.

Brian:
My pleasure.