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post mortem of aquisitions

This is a post as an entrepreneur, shareholder, observer of the big league M&A.

After reading Berkshire Hathaway last shareholder letter a few things jumped at me, due to my past experiences:
  • how to really think about swapping shares in a merger situation
  • looking back to analyze past acquisitions (or post-mortem analysis of acquisitions)
    • how are my next investments judged based on the performance of the actors involved in the past M&A
    • what is the time-horizon to draw a line and judge the benefits of M&A
           I have been in both positions (company I worked for being acquired or acquiring). In my direct experience acquiring a company proved to be a bad decision for shareholders. There is a wide spread opinion the larger you are as company the better you are noticed. There were well known cases when number two or three in the industry jumped to swallow number one just because the egos were big and debt was cheap. It happened for me as a shareholder of companies like First Data Corporation, Nokia, Kingsway Financial etc...

        I gained some money in the process, but probably I lost in the long term. The "agency problem" of the management is well studied but not solved in the real world. Will management make a short-gain move for themselves and let the shareholders holding the bag (with the "help" of corporate raiders ?). Companies I admired and (in consequence) invested in them ended up as withered images later on after milked by hedge funds and private investors (remember the map company aka HERE maps or First Data ?).

       If you are looking at the history of First Data after the acquisition by KKR, it makes you wonder, was it a financial feat or a real gain for the acquirer ?! What is life after you were "optimized" by the corporate raiders? First Data is now back, independent. Is it better, what has changed in all the year in private ownership? Is that an interesting case for MBAs?

There are many situations were the initial step - announcement on acquisition is lifting the price and, in time, the whole process unfolds in a totally different direction. In recent times was a catastrophic case of Walgreens trying to acquire Rite Aid - a $10 billion mega-merger which was a tragic-soap opera in flux with Trump emergent figure as president. Trump was an influence because of the rhetoric in "fixing-the-economy" and sudden realization that "America will be great again' meant no mega-merger to milk the American people was palatable. The botched sales of Rite Aid has emptied the pockets of many shareholders. Today, Rite Aid is at a value not seen since 2013. Good play, Rite Aid CXOs!

On the other hand, the fixer-uppers in finance moved there sights on smaller players with potential - see KKR move on Medtronic and Gilead acquisitions of Kite Pharma. The low interest rates is still an incentive for harnessing on debt for the near future.

I am waiting for Mr.Buffett to point when the market is so enticing for him to punch the cash bag for a big acquisition.

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