When one company "merges" with another -- a euphemism that really means one buys another one out -- a bigger company generally results. Bigger, but better? Sometimes yes, sometimes no.

It's obvious that certain companies make better acquisition targets than others. Good picks include companies with a solid balance sheet, ones that have substantial market share but may be stagnating because they're incapable of further growth due to a lack of some type of resources (people, investment, or both), or companies that have a founder/president who wants to retire and has no real succession plan. Evaluation of a company's technology assets is also a must.

"Regardless of whether the deal is structured as a stock or asset acquisition, there should be extensive consultation between the parties' technical specialists before closing, a well-thought-out transition agreement, and, if the seller's technical specialists are not becoming employees of the buyer, an assurance that the buyer's technical specialists will have continuing access to the seller's technical specialists," says Jeffrey Johnson, corporate partner at law firm Pryor Cashman.

Assuming the purchasing company sticks to this script and is not looking for a "fixer upper," which has one really attractive asset typically but is beset by myriad problems, why then do so many mergers "go bad," or at least endure some level of unflattering press?

"Buyers should never assume that the products and services used in the business will be sufficient on their own," Cashman says. "Rather, the buyer will need personnel who have extensive experience developing, maintaining, and operating the technology that embodies or is otherwise used in connection with those products and services."

Those personnel also make up the culture of the company to be bought. Experts say discounting differences in culture can lead to enormous conflicts. Some, such as Logicalis, target companies with approaches similar to their own. "Look for companies that line up culturally," says Terry Flood, COO of Logicalis, which has acquired eight companies in six years. "We are constantly searching for the ideal match. We literally look at hundreds of companies. Some are right now, others later." When one company looks to buy complementary ones, such as Tellme and Microsoft, the combined entity grows. Often, because there's no duplication of effort, staffs don't have to be drastically consolidated. Big layoffs give M&A a bad name.

Of course, differences between companies will also exist merely because of their disparate sizes. Often, small companies are agile and flexible but have unorganized processes. Large companies offer stability and structure. In an ideal M&A, both can win big. In a poorly planned one, both can lose everything.

Jennifer Bosavage
Jdalessa24@yahoo.com
www.informationweek.com

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