Company merger looms nearer

Not much happened in between the three months since my last serious post at the start of April. I was busy with my evening classes and darts. Day to day work was busy, rushing through consulting projects and client presentations. Work life was punctuated by news of colleagues leaving mostly involuntarily as the company sought to trim headcount ahead of the impending merger as well as in response to the weak market situation.

After abandoning the much-loathed strategy of serially acquiring companies, our company went big and announced it was merging with another company (let's call it Equal). A strategy of acquiring companies is good for shareholders (including the company executives who have share compensation plans) in the short-term because it boosts earnings as well as market share. It is also a means for the company to acquire capability.

However, studies have shown that companies tend to overpay for acquisitions. As a result, share price will underperform in the longer term, despite the vaunted synergies. Just do a simple online search and you will find endless studies supporting this. Evidence that suggest otherwise are typically submitted by M&A consultants who wish to stroke the egos of CEOs. And make the advisory fees of course. At the employee level, it means lesser cash that could be spent on investing in organic capabilities. With a bigger product suite, there is the need to integrate them but this always face resistance where the capabilities overlap.

In a span of three months after the initial announcement, the merger with Equal will take place in a few more weeks. Given that Equal is focused selling to another industry, the impact of the merger will be minimal to me in the short term. Those working in functional groups such as IT, HR, Finance and Estate will probably be edgy. After all, the heads of the two companies promised shareholders that there will be immediate cost savings. There is a very likely possibility that Equal employees in Singapore will move into our current office. Cramp conditions, especially poor toilet conditions will be the order of the day. What will be most interesting to watch is how the senior managers jockey for limited offices.