What Makes You Think You're Exceptional?

It's not your imagination:   Mega-mergers in corporate-land are on the upswing.  According to The Wall Street Journal, the last five months have seen more than a dozen deals valued at more than $10-billion.

And the result is that "investors quake."  The sorry track record speaks for itself:  30% create added shareholder value, 20% have no effect, and fully 50% destroy value.  [One can bog down in an endless debate over whether merger-hungry companies are already in trouble and looking desperately for an exit door—which would mean the sample of mergers is top-heavy with doom-laden firms—but we are looking at empirical reality, not hypotheticals or a controlled double-blind experiment.]

Given that the M&A and consolidation trend among the AmLaw 200 has emerged as a fairly consistent theme here, can we draw any lessons from corporate-land?

The two Bain partners who wrote the Journal article think so, and it's worth a read: Their thesis is that "deal success is not random."  And among the key leading indicators of success are:

• Is management experienced in deal-making?  Rookies have poor at-bats, and "by far the worst returns accrue to companies that do large, one-off acquisitions."
• Will the acquisition strengthen the buyer's core?  Deals with large operational overlaps tend to reinforce the resulting firm(s), but veering off in a new direction leads to a lower stock price (read:  diminished value) two years out 75% of the time.
• Was real due diligence done?  On this score, take a look at the "masters" of deal-making, private equity investors like Blackstone Group or SilverLake Partners.  They assume nothing, including refusing to assume they know anything about particular businesses even in industries they know well.
• Will management address integration immediately?  "Bad deals unravel during integration."  Recognize that integration must be speedy and comprehensive, and that one and only one "cultural acquirer" will emerge—not necessarily the buyer.
• Finally, are you prepared for the unexpected?  If you're not prepared for mid-course corrections, you may find yourself skidding towards the guard-rail with no Plan B.

If, as I believe:  (1)  M&A in law-land will only accelerate; and (2) corporate-land M&A mortality statistics are sobering, then this is worth pondering.  After all, "it's only business."