Companies Are Not Designed to Merge

by Victor Lund on January 3, 2017

Merger Puzzle

WAV Group has participated and observed the mass amounts of merger activity that has hit a high pitch in 2016. It is happening at all levels of our industry – agents merging into teams, brokers merging into mega brokers, Association of REALTORS® mergers, and MLS mergers. Based upon our work schedule for Q1 of 2017, this trend does not seem to have any ebb in sight. WAV Group will facilitate more M&A activity in Q1 than any other quarter in our firm’s history.

Company founders and Boards of Directors are often not open-minded about mergers. The first reaction to a merger discussion is naturally defensive because the merger itself often pits a company that is stronger against one that is weaker. The stronger company often overlooks the centers of excellence that the weaker company has. The weaker company often feels dominated and under appreciated.

Commit To The Evaluation

I fondly recall an awkward meeting where two boards who were considering a merger were stuffed into a junior suite at an industry conference to interview consultants for merger facilitation. My responsibility was to pitch them on WAV Group. I started out by asking them if they had decided to enter into discussions in good faith, had they signed a non-disclosure agreement, were they willing to share financial information, etc. They looked at me like I was crazy. Consultants do not build consensus. They build merger models.

I went on to explain that Boards must commit to a full out merger evaluation to have any chance of success. Boards must agree to enter into merger discussions and create merger models that are real. This involves performing customer research, financial modeling, governance modeling, staffing, communications, contract review, etc. In effect, you fully plan your merger before you ever call the question at a board meeting. The role of a consultant is to build the model, collecting information from both sides and working collaboratively to see what the new entity looks like. Both boards should have an answer to every question.

The Threat or Opportunity

In many mergers, there needs to be some notion of a shared threat or opportunity. It begs the question, what happens if the merger does not go through. If the answer is nothing, then there is probably no reason to merge. However if the answer is tied to protecting both organizations from a mutual threat, or allowing both organizations to realize a mutual opportunity – then the game is on.

A fun board exercise is to whiteboard these questions, and follow this sequence. Use flip charts, break into small groups, rotate people in groups, role play in groups, and other facilitation best practices.

  1. “If we merge with __________________, then we will be able to ___________________.” Here you brainstorm all of the conceivable benefits.
  2. “If we don’t merge with _____________, then _____________________.” Here you explore the possible outcomes, if any.
  3. “To merge with ______________, I would need to know _________________.” What are the unanswered questions or untested theories that need to be evaluated?

The role of a consultant facilitating in these exercises is to bring experience to the conversation that boards do not have. WAV Group knows issues that become deal killers and ways to mitigate those issues.  We catch this big harry problems that you may miss. Consultants also call “bullshit” on false beliefs that can polarize boards into stalemate. This is the value that our years of experience brings.

Need help with mergers? Send a confidential email or give us a call.

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