Some Personal Thoughts About M&A

I was recently reminded how beauty can cause intelligent people to miss how dangerous a situation can be. The lesson has since helped me better understand what my clients can experience when evaluating a potential merger or acquisition.

Not long ago, we were on the Big Island in Hawaii with friends. I was just going with the flow and not really paying attention in advance to our various arrangements.

Our friends hired two guides to take us sea kayaking to a small island about three miles from shore. I’m not a kayaker, so this was a new experience (translation: I have no skills whatsoever).

As you probably know, Hawaii has big surf. Big-as-your-house surf. Our guides explained that we would launch from this little cutout at the back edge of a parking lot. It was literally a 30’ flat spot cut out of concrete, and it bordered a section of the ocean in which the waves were much smaller than the surrounding areas. But there were still waves, and they tended to come in groups of five.

We got ready, and the guides counted the waves. When five had passed, they yelled, “Quick, get in!” and we paddled like crazy. I had so much adrenaline pumping that we made it no problem.

We were safely in the Pacific Ocean and soon in waters over 200 feet deep. The color of the ocean was a deep blue I’m not sure I have ever seen before, and we made it to the island without much of a challenge. Then we snorkeled, and ate lunch, and started back.

Just offshore from our put-in, we saw that conditions had changed. “It seems the surf has come up a bit,” said one of our guides in the understatement of the day.

By this time, having paddled with them for hours, it was clear to me how inexperienced they were. For one of them, it turned out this was his third day on the job.

I silently scolded myself. In a near-paradise, it was so easy to be lulled into a false sense of security, but now we were in serious waters with kids who had badly misjudged the situation. Long story short, after several attempts – and two scary misses – we all made it safely onshore.

The experience has troubled me since.

When a shareholder team makes the decision to explore the possibility of selling their business, they are often reacting to what they perceive as beauty: lighter responsibilities, large sums of money exchanging hands, and so forth.

In many cases, they pay less attention to potential dangers: the loss of organizational culture, the weakening of their legacy, challenges to their values, and the uncertainty that can destabilize their work force before they even know it.

A successful M & A process starts not just with a deep dive into the beauty, but also with equal or greater attention paid to the potential dangers. When you are paying attention in advance, it is many times easier to avoid harm to you or your team. But when you wait until the rocks are looming and the waves are relentlessly pushing you towards them, you will regret it.

Full disclosure: I felt foolish paddling a few hundred yards offshore, realizing that my focus on the beauty allowed us to be at the mercy of dangerous forces I could have easily avoided. But in retrospect, this experience taught me a lesson well worth learning. Perhaps it will also help you do the same.