Mergers and acquisitions are an essential tenet of capitalism. They are the route many companies take to grow their businesses.
But there are many failures amidst successful M&As. Remember the much-ballyhooed Time Warner-AOL Warner merger that turned out to be a real disaster.
So here are a few golden rules of mergers and acquisitions. They come courtesy of Stacy Enxing Seng, president of the Global Vascular Therapies business of Covidien. Enxing Seng joined the Irish firm when it purchased ev3 in a multibillion-dollar deal in 2010. She shared her guiding principles at a women’s leadership event Thursday organized by LifeScience Alley, a trade association in Minnesota.
- Always remember that 1+1=1.8
When doing an M&A it is important to recognize that the deal should never be oversold. When ev3 bought Fox Hollow in a $780 million deal, ev3 sold the deal as a 1+1=3 to the board. But after the acquisition, the company struggled to integrate the sales force.
“We really had our clocks cleaned,” recalled Enxing Seng.
It is far better to underpromise and overdeliver, she said. And that is precisely what Covidien did. It told the street that the deal would help drive sales into the peripheral vascular space, where ev3 played in, but that it would be dilutive, she said.
“We [Covidien] are going to give them a haircut,” she said, describing Covidien’s strategy.
And it worked because a few months later, ev3 became accretive, Enxing Seng said that it is important to communicate that it takes time for “things to bear fruit.”
- It’s all about the people
In any M&A deal it is important to focus on the people and create an environment where people will want to remain. That is exactly what happened with the Covidien/ev3 deal.
“I am so proud that we have had less than 5 percent turnover,” she said.
- Fight for it
When a small company is acquired by a larger company, it is incumbent on the small company to bring to light issues of importance.
“The CEO, the executive team want to hear your frustrations,” Enxing Seng said.
It won’t always be that they will necessarily agree with you and take your side, but it’s important for you to “fight the good fight that is important for your team,” she said. And that goes a long way in creating a healthy culture.