Beware of Las Vegas marriages, advises a mergers and acquisitions professor
Professor Thomas Keil of the University of Zurich has been studying mergers and acquisitions for decades. In his view, it is often best to start from being aware what will lead to disaster in M&A.
‘Failure often results from seizing an opportunity unprepared, experiencing time pressure, strong personalities involved and difficulty in backing out once the process is underway. These are also often the largest deals in terms of size, so the disaster becomes very public,’ says Keil. He was a keynote speaker at the Aalto University M&A Forum recently.
Keil calls hasty deals "Las Vegas marriages": after a while the parties wonder what happened when they don't really know each other.
An opportunistic M&A deal can even be financially profitable in the short term. But its main drawback, according to Keil, is that digesting the deal, for example the clash of corporate cultures, takes up huge resources from both management and the organisation more broadly. These could have been much more usefully spent on the strategic development of the company.
Keil also specialises in strategic management and sees that, if used correctly, M&A is an important tool in this regard. To be successful, a clear strategy must first be developed and then implemented through acquisitions.
Acquisitions as a tool for transformation
‘Kone, for example, has gradually increased the share of the maintenance and repair business in the company through a series of small acquisitions. Or, Holcim in Switzerland has transformed itself in a few years from a high-emission cement producer into a sustainable construction company through both acquisitions and divestments.’
In addition to a clear strategic objective, successfully exploiting acquisitions requires a lot more than just a set of skills. Potential targets must be patiently combed through the acquisition pipeline, as deals can take years to complete.
‘Decision-making processes need to be robust so that deal makers don't get too excited. Big-ego managers easily overpay for their purchases.’
The right pace of acquisitions is also important: allowing sufficient time for the integration of large sites in particular and taking a break from new deals when necessary.
‘You have to be careful not to have too strong an M&A department in the company, because it will want to do deals even when there is no need. The M&A department does the deals, but senior management and ultimately shareholders have to live with them.’
Success requires a wide range of skills
According to Keil, a successful acquisition always requires teamwork. Even if the CEO is an M&A specialist, he or she is usually only strong in one aspect of the deal. The risk is either that he tries to lead the others, or that he neglects integration, for example, because he is not interested in it.
Keil started his career at Aalto University and continues to work with Aalto researchers and alumni.
‘Aalto has long had strong expertise in M&A in many departments and many of the well-known names in the field worldwide come from here: professor Erkko Autio at Imperial College, professor Tomi Laamanen at the University of St Gallen, professor Riitta Katila at Stanford,’ Keil lists.
According to Dr. Markus Mäkelä, the main organiser of the event, M&A is a natural topic for the new event, as it is related to many of Aalto's fields of study, from strategic management to finance and industrial engineering and management.
‘The idea for an event came originally from finance alumni and they were actively involved in organising the event. We have decided to have a similar event next year, where we are looking for top international speakers like Keil,’ says Mäkelä.
Aalto-based researchers have done a lot of research related to M&A, for example on programmatic M&A expertise, integration management and the role of human resources, and the importance of offer-price precision for the success of a deal. There is also strong expertise in the related private equity industry.
‘The M&A process can be divided into three major parts: strategic M&A planning, negotiation and transaction execution, and integration. All of these need to be managed capably to make the deal a success,’ says Mäkelä.
The event was supported by the Aalto Networking Platform.
Text by Heidi Hammarsten
Esteemed mergers and acquisitions expert visited Aalto
Ted Rouse was a speaker at the first Aalto M&A Forum in October 2023. Rouse is an advisory partner working at Bain & Company in London, with extensive experience in corporate mergers and acquisitions.