merging

Whenever I hear of Intelligence colleagues getting involved in mergers and acquisition, I figure “smart company”.

A friend at an Aerospace Firm tells a great story about how, in the process of profiling competition ahead of bidding on a major defense program, the Intelligence Team identified a unique opportunity one rival firm held in radio communication technology.

Instead of simply advising management that this would require lowering the firm’s bid, the Intelligence Team went looking for small firms and intellectual property that could address the firm’s perceived weakness.

This led to the discovery and fast acquisition of a small tech company that allowed the firm to take a major lead in this particular radio communication technology.  Not only did the firm win the big defense contract, it gave them a major leg up in future commercial aviation contracts.

Firms that conduct their M&A activities the traditional way -through top secret finance teams working with blue-chip investment bankers and reporting only to a CFO or Chief Counsel- are remarkably short sighted and more inept at deal making than they’ll ever admit.

This item in Sunday’s New York Times points out many of weaknesses of the finance and investment banker approach.

In Silicon Valley, Mergers Must Meet the Toothbrush Test

The toothbrush test is Larry Page’s vernacular for judging the relative attractiveness of an M&A target.

As intelligence professionals who aspire to nothing less than influencing the direction of their firms -to helping them win in the market- designing M&A strategies, finding acquisition targets, and conducting due diligence, are all logical and important intelligence deliverables.

I’ve always thought that investment bankers were uniquely ill-suited to these tasks. Not because they aren’t bright or talented people, but because they aren’t experienced in the transaction level dynamics of the businesses they are evaluating. Despite the reams of paper and financial modeling these folks produce, they simply can’t speak to the operational, selling or marketing aspects of a potential acquisition.

The way they overcome this weakness, of course, is to hire and sub-contract opinions … a huge industry in and of itself. But even after paying more outsiders to understand transaction level issues, investment bankers still end up reflecting these insights back to their buyer clients through a financial lens.

So it should be no surprise that the traditional M&A approach is showing weakness and a Do-It-Yourself approach is on the rise.  And aisle 1 for the Do-It-Yourself approach should lead straight to your Intelligence Team!