Jeremy Garvey

Monday, 23 May 2005 20:00

The science of M&A

There's no science behind a deal, a true merger or acquisition. Stanley Foster Reed's classic book, "The Art of M&A: A Merger Acquisition Buyout Guide," makes that clear.

Deals are like everything else, and things just don't always work out the way they should. There are three things that screw up deals people, people and people. That's an oversimplification, because many things other than people can complicate deals, but it is usually the players involved who add the complexity.

Accordingly, here is a four-part plan to help you reduce M&A deal risk.

* Deal people. Surround yourself with people who are deal people. There are a lot of talented advisers, but you need one who knows what is important and what is not -- someone who knows when to fight and when to take a view on what is a real risk and what is esoteric. Your adviser also has to be able to explain in plain English what it will take to close the deal, because if the other folks don't know what you are trying to say, you're never going to get the deal done.

* Control what you can, chase what you cannot. Control those things that you can and manage those things that you can't. There are a lot of things that are within everybody's control in a deal, and you should put those on a list and make sure somebody is responsible for getting them done. There are other things outside of your control ,and you need to stop early in the process and try to anticipate those potential road blocks. Expect the unexpected.

* Due diligence matters. Don't confuse effort with results. Results matter, effort is a far second place, and in most instances, it's the junior or inexperienced people looking at due diligence.

In the electronic age, people spend less time looking at documents and more time worrying about economics. Don't make the same mistake. It's rare that there are absolute smoking guns, but usually there are pretty good signs that somebody has gunpowder on their hands.

If something doesn't seem to make sense in the due diligence, there is probably a reason, so dig deeper. Due diligence is always a balance of getting usable information at an acceptable cost within the time required, but do not ignore what does not make sense.

* It is about the deal. Unpack the emotion. Deals are like anything else -- things are bound to go wrong and things are going to go right. People are likely going to get upset, tired and frustrated.

The best deal people have the whole range of emotions, but they only use those emotions when it best suits getting the deal done. In real fact, it is never personal. It is always just about the deal.

That's not to say that true deal people are not competitive or passionate about what they do, but they keep their eye on the ball and they don't let anything get in the way of the deal.

There is a lot that can hinder deals, particularly in complicated regulatory environments post-Sarbanes-Oxley. And, it's not just people. No one can predict the future, and you can't predict what is going to impact your deal.

But what you can do is find the right people to be on your team, determine and anticipate what you can and can't control, do your homework and ultimately, make it about the deal.

Jeremiah G. Garvey is a shareholder with Buchanan Ingersoll, practicing with the firm's corporate finance and technology section. He maintains a broad corporate practice, and focuses on private capital financings, public securities offerings, securities law compliance, general corporate guidance, and governance and equity-based compensation issues. Reach him at (412) 562-8811 or at garveyjg@bipc.com.