Perspective on the Art of Mergers and Acquisitions

Last week, H.J. Heinz was purchased at a 20 percent premium of the stock price. Heinz, another “unexciting” business that does nothing but make money, was the latest addition to a long list of Warren Buffett’s (Berkshire Hathaway) brand-name companies. Look at this partial list:

  • Geico
  • Dairy Queen
  • See’s Candies
  • Fruit of the Loom
  • Benjamin Moore & Co.
  • Business Wire
  • NetJets

Unlike other firms that buy companies and then change the management team, the leadership, the culture — all in an effort to improve the business — Buffet does something entirely different. He buys sound businesses with an upside and doesn’t make the typical changes. Buffett often actually lets the existing management team run the business it knows so well, with little interference from him. It’s simple, and an anomaly in the culture of corporate acquisitions, but it works. That’s why Buffett is the Oracle of Omaha.

But he doesn’t get enough credit for the types of companies he buys outside of them being financially viable businesses. He makes sure the companies keep their brand names intact. That’s huge.

Most executives who want to acquire a business don’t have the same mindset as Buffett. It’s hard to resist the urge to get involved and make changes in order to improve the company and improve returns for you, your shareholders, or both.

And that’s fine, if you do it right. But never discount the brand of the business you are buying. Here are questions you should answer yourself before any acquisition:

  • Does the business have some poorly functioning lines of business or divisions?
  • Is the company a “known” brand?
  • Can you keep the name of the company indefinitely?
  • If acquiring a product-based business, are the products almost “timeless,” and can processes be repeated consistently to ensure a high rate of return on equity?

If the answer is NO to any one of these, you probably should find another acquisition candidate. Let me elaborate:

  • Repeat after me: Do not buy a business that you cannot improve. These types of companies offer the greatest reward for any buyer. A company that already is great should be considered low-reward, especially if the current leadership team is not going to be around for a long period of time.  Smart executives look for ways to improve the sales function, marketing, finances, and cost structures of any business they acquire to drive results.
  • Is the company known to many? Having an instant brand that you acquire is something to place a premium on. Already having a brand name in the marketplace you serve is a tremendous asset for any acquisition. Too many companies fail to tap into the brand equity of the companies they buy.
  • If you buy a product-based organization, make sure you understand how long those products will last and that there remains a growing market for those products. Think like Buffett. Among his stockholdings are companies that will never go out of business and will keep making money: Coca-Cola, Anheuser-Busch and American Express, to name just a few.  For HR/Talent/Learning organizations looking to grow through acquisition, think about how long the products that the company is selling will last, i.e., Will they require updating? Are the company’s product lines growing?
  • Finally, understand … please, please, please understand that  whatever you want to improve in the acquisition target, such as revenues, will take twice as long and twice as much investment as you initially thought. If you aren’t comfortable with that timing and investment, think again before acting.

Like what you see? Share with a friend.

Mike Cooke



Stay connected

Get notified for upcoming news subscribing

Related Content

Mike Cooke

Chief Executive Officer of Brandon Hall Group Mike Cooke Prior to joining Brandon Hall Group, Mike Cooke was the Chief Executive Officer and co-founder of AC Growth. Mike held leadership and executive positions for the majority of his career, at which he was responsible for steering sales and marketing teams to drive results and profitability. His background includes more than 15 years of experience in sales, marketing, management, and operations in the research, consulting, software and technology industries. Mike has extensive experience in sales, marketing and management having worked for several early high-growth emerging businesses and has implemented technology systems to support various critical sales, finance, marketing and client service functions. He is especially skilled in organizing the sales and service strategy to fully support a company’s growth strategy. The concept of growth was an absolute to Mike and a motivator in starting AC Growth, in order to help organizations achieve research driven results. Most recently, Mike was the VP and General Manager of Field Operations at Bersin & Associates, a global analyst and consulting services firm focused on all areas of enterprise learning, talent management and talent acquisition. Tasked with leading the company’s global expansion, Mike led all sales operations worldwide. During Mike’s tenure, the company has grown into a multi-national firm, conducting business in over 45 countries with over 4,500 multi-national organizations. Mike started his career at MicroVideo Learning Systems in 1992, eventually holding a senior management position and leading all corporate sales before founding Dynamic Minds. Mike was CEO and Co-Founder of Dynamic Minds, a custom developer of software programs, working with clients like Goldman Sachs, Prentice Hall, McGraw Hill and Merrill Lynch. Also, Mike worked for Oddcast, a leading provider of customer experience and marketing solutions, where he held a senior management position leading the company into new markets across various industries. Mike also serves on the Advisory Board for Carbon Solutions America, an independent sustainability consulting and carbon management firm that specializes in the design and implementation of greenhouse reduction and sustainability plans as well as managing the generation of carbon and renewal energy and energy efficiency credits. Mike attended University of Phoenix, studying Business Administration and Finance. He has also completed executive training at the Chicago Graduate School of Business in Chicago, IL.