Significance of ego in failed mergers

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  • #68468
    Kester Low
    Participant

    It has been widely discussed and agreed upon that hubris and ego of the management teams on either side (particularly on the acquiring side) could likely lead to failure of the M&A transaction. Fingers have been pointed to specific people and their ego in deals such as Zell’s acquisition of Tribune or the merger of Omnicom and Publicis in multiple published articles. However, how much of the transaction’s failure is actually contributed by the ego factor? How certain could we be to justify that the failure of a certain M&A deal was due to the overconfidence of the upper management that the deal is worthwhile?

    #68546
    Eric Chueh
    Participant

    Ultimately, as outsiders, our perspectives are limited by the information released – however, given enough detail into the structure of the deal, one may consider an Occam’s Razor approach towards defining the point of failure; if all other factors align, the People aspect may simply be the only issue left. That being said, a disagreement in value, price, or terms may not necessarily be an ego issue – as the course case studies show, a plethora of logistical factors may contribute to a failed deal.

    #68986
    Shamil Fayzullin
    Participant

    Interesting that with the all knowledge that humanity gained during its history people still have a lot of biases. You would expect that CEOs of the companies are the smarties people on Earth as they were able to reach their positions. In reality, they are also people with biases. Think about a CEO that was able to gain her/his (probably his and not her as we have another bias with a tall man as a CEO) position by betting on some risky activity that worked in the past. That creates overconfidence in future decisions such as M&A. Noone wants to think that their success may be driven by luck or other circumstances. I believe in each failed deal there is always partial overconfidence by the management involved.

    Check this article about average CEO height:

    Why many CEOs are tall people? The height of the matter, By Bisi Daniels

    #69047
    Scott Love
    Participant

    Inflated or conflicting egos at the top can cause various problems along the way but one issue came to my mind immediately when I read the original post. One example of ego leading to a poor outcome occurs when diligence says to walk away from the deal but the C suite decides to push through because they are certain they can make it work.

    #69160
    Adrienne Heiskanen
    Participant

    Ego seemed to be a significant factor in Elon Musk’s recent attemped acquisition of Twitter. It’s hard to explain why he would have tried to rush through a deal without contingencies.

    #69591
    Randy Woods
    Participant

    @Adrienne Heiskanen – I’m pretty sure Elon is a robot sent from the future to save us, so I’m not sure we should use his ego as an example (kidding). Elon aside, the rest of us are human. Companies are run by humans. Humans have egos. To my mind, the egos of executives on both sides of the table are just one more risk to be managed. On the acquisition side, there are fairly well established tools for this, including defining for and against teams and having them battle it out, or having a formal ‘worst case scenario” be part of every investment thesis.

    The egos of the acquired management (or founder) need to be recognized and addressed. This requires a high level of emotional intelligence in the deal team -lawyers and accountants are necessary but insufficient (unless they are unusually gifted in human insight). Part of the negotiation process needs to be gaining an understanding of what drives the other side – where their motivations lie. Then make sure you meet these motivations in the deal structure. Does the founder want to be famous? Get him on stage post acquisition as soon as possible. Are the management team being acquired fearful of competition? Align each with an internal champion who can help them navigate the acquiring firm’s politics.

    Egos are one more integration problem to solve. An unavoidable one.

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