After decades of M&A advisory experience, first with Bain & Co., then as founder, chair and managing partner of the Parthenon Group, plus a distinguished director career, Bill Achtmeyer has an acute, board’s-eye view of M&A. Here, in conversation with governance and leadership adviser David W. Anderson, Achtmeyer draws on experiences and situations in his own career to address questions like: Why do so many deals fail? What rides on the CEO? Where do boards get it right? And wrong? There are many takeaways, but Achtmeyer, who sold Parthenon to Ernst & Young in 2014 but stayed at the helm, commanding an even bigger strategic advisory practice within EY, consistently asserts the value of process and planning. If you as a director feel like a deal is being rushed, he says, take a pass.
David Anderson Corporate acquisitions are among the most momentous processes organizations endure—often for little benefit. You’ve participated in acquisitions as a director and owner and have advised on them for decades. Is there a common mistake being made?
Bill Achtmeyer Too often the acquisition process is led by opportunism rather than thinking comprehensively about what’s best for the company. Patience and discipline are lacking. That’s why acquisitions often fail to create value, as the academic research shows. I like to see a merger opportunity pursued in many ways, but fundamentally the CEOs have to build trust by getting to know each other.
David Anderson What should directors ask their CEO when an acquisition proposal shows up?
Bill Achtmeyer First of all, if you are a board member faced with an out-of-the-blue acquisition that you’ve not discussed in prior board meetings, then it’s a very risky proposition. It may have some elements on paper that look interesting but there’s no fundamental understanding of the company. That’s a real issue. Boards looking to grow their companies through acquisition should require management to have a process. I would ask the CEO to bring clear updates to the board on three questions: One, where are the target companies in their cycle? Two, how are you developing relationships with each? And three, what would an attractive offer look like?
David Anderson Are there characteristics of companies that do acquisitions well?
Bill Achtmeyer Companies that I’ve seen enjoy success in being acquisitive either have it as part of their raison d’être—GE comes to mind—or are particularly diligent when they do make an acquisition. I’ve worked with Corning and Thomson (now Thomson Reuters) and both had solid acquisition programs at the corporate or business unit level. They were deliberate, putting in time up front, thinking about their acquisitions and then taking time to assimilate them carefully. My experience on the Briggs & Stratton board was similar, in that management took time to identity top acquisition candidates and walk us through the current status of each company and how they looked relative to what would make sense economically and strategically. Such a process is not hard to understand, but it is very disciplined. The great acquisitors have a list of top picks and concentrate on understanding them and wooing them and studying their market conditions. This way they know that if any one would be successfully landed, it would fit on many dimensions. The more you approach it this way, the better the outcome will be.
David Anderson What does a CEO’s interaction with the board look like when done well?
Bill Achtmeyer I’ll use Agilent Technologies, a spin-off of Hewlett-Packard, as an example. Bill Sullivan, Agilent’s CEO, kept three or four companies on the radar screen for his board and identified Varian Inc. as the top candidate for acquisition. Bill kept his board apprised of Varian’s business performance and his relationship- building activities with Garry Rogerson, Varian’s CEO. When it was clear Varian didn’t want to sell, Bill discussed a range of options with his board including joint ventures and strategic alliances. Bill made sure he invested in the education of the board, so that an acquisition would be a natural event not met with surprise, but anticipation. Over time, Agilent performed very well relative to Varian and the opportunity arose where both felt it was better to put the companies together. Bill and Garry had talked a lot about their philosophies and Bill discussed this with his board along with an updated vision for a merged company. The board studied Bill’s detailed plan for the first 100 days, which aimed to capture as much of the synergy and integration benefits as possible. But they also took a longer point of view, thinking ahead two years to pull the organizations together carefully. Bill and the board made sure there was thoughtful planning for how R&D expenditure could be more effectively used and what best practices from either company would continue. The deal went well because the process was deliberate and thoughtful and won the full support of the board by keeping them familiar with the business rationale and relationships. At the stage of actually pulling the trigger, the directors had sufficient knowledge to be comfortable. While this was not a blockbuster deal that garnered a lot of press, it was a savvy deal for both companies
David Anderson We may also learn from failure. What M&A value destruction comes to mind that offers lessons?
Bill Achtmeyer I think of Ford in the period they were buying Jaguar, Land Rover and Aston Martin. We know Ford at the time was a business making no money in its different lines other than trucks. They paid astronomical prices for these luxury brands and then spent a fortune to upgrade each of them. In the financial crisis, Ford had to divest them all to have a prayer to do its turnaround. The business case was flawed. HP buying Compaq was similarly flawed and may be the worst of the big deals. Compaq had acquired Digital and other hardware companies, so putting HP and Compaq together was actually putting three or four companies together, in an environment suffering a 10% cost disadvantage to Dell. The deal was sold on the basis of cost synergy, yet any business school student would fail if they argued this. In the face of no revenue or organizational opportunity that would create value over the long term—you know cost savings will run out—what then are you going to do? It defies logic if you’re a company trying to buy things for the longer term. Sorting out business models, revenue opportunities and issues of culture are complicated. The lesson is it takes human beings a while working together to generate a compelling rationale, legitimate plans and personal commitments. Slapping together a complicated plan in a condensed time frame doesn’t allow for disciplined vetting by the various parties and leads to disappointment. As a board member, it’s better to pass if you feel a deal is being rushed.
David Anderson You’ve indicated a level of irrationality can motivate M&A deals. Does the disposition or personality of the CEO affect M&A activity?
Bill Achtmeyer Dun & Bradstreet is a great case study. It went through a huge acquisition stage, then a huge divestiture stage. So much had to do with the attitude and comfort zone of the CEOs and their willingness to take risk. In its highly acquisitive phase, Dun & Bradstreet bought a series of information companies that took it from $1 billion to $15 billion in value. If I was doing a psychological analysis, the CEO was a very engaging and magnetic figure. He could envelop anyone in the new merger vision he was pursuing. But the next CEO the board chose was more inwardly focused and didn’t want to engage in what he viewed as the ‘wheeling and dealing’ of M&A. He was oriented to operations and comfortable talking about customer likes and dislikes. This didn’t take root in the culture, so the board brought in a new CEO, this one with a strong technology background and different sense of risk. He saw technology changes with negative implications for the business, so he divested everything—A.C. Nielsen, IMS, Moody’s and many others. While neither approach is right or wrong—shareholders got a good financial deal over time—it’s an example of a company that went from one extreme to the other. A lot can change with the CEO, depending on where the CEO is most comfortable. You have to have the zeal and interest for things to work. Boards have to understand where they can influence value creation and preservation—it’s in the business model, the leadership and the people.
David Anderson Have you seen boards show sophistication factoring in this interplay of business interests and CEO leadership dynamics?
Bill Achtmeyer In my Briggs & Stratton experience, the board and CEO, Todd Teske, came to the opinion that the company needed to gear up for acquisitions. I don’t think Todd was naturally inclined to do deals, but he saw the same business necessity the board saw—that producing lawn motors for lawn mowers had reached a level of market share that was constraining growth. Being a highly capable CEO, he figured out a way to take advantage of the company’s core capabilities to deliver growth through strategic acquisitions. Todd and the board were drawn to acquisitions by the business case; a collective board-and-CEO view developed on what the future held and on a process to make the right acquisitions and support the organization throughout. Not all boards and CEOs are as flexible in their thinking and capable in their leadership, but there are good examples to follow.
David Anderson What specific advice do you have for boards of acquiring companies?
Bill Achtmeyer Boards generally do their best work asking questions that provide management a platform on which to defend and sharpen its logic, absent negativity, confrontation and defensiveness. Boards that exercise skepticism in a constructive way find out where the potential risks lie and the level of those risks—which may not otherwise be presented or discussed as warranted. By acting in this way, a board can force management to get more specific as to why the deal makes sense, the plans and back-up plans, the mitigating circumstances and management’s capacity to work with their counterparts in the company to be acquired. Only then can a board understand if the acquisition is well planned and fits along the relevant dimensions. A board’s most important role is up front, making sure the conditions are right by employing the Socratic method, to get management to go down a level below that which it is inclined to present to make its case. After the deal, the board should have a ‘look back’ session to evaluate what actually happened against what was supposed to happen and thus enforce discipline and learning.
David Anderson What should boards of target companies do?
Bill Achtmeyer That depends on the ethos of the company. If focused singularly on shareholder return as a metric for success and the culture understands that, then it’s a relatively straightforward analysis of the financial deal; is the offer better than what can be done independently? Most companies today have aspirations for their customers and employees and want their brand to have a better future. Here is where boards can distinguish themselves. The price may look attractive, but what elements will come into play that will allow a customer or employee to think this deal provides a better future? If that can’t be explained, then you better be careful about selling for that price. Boards should ask: How is this better for the career development of our people? And, how will the customer benefit relative to what they receive today? If these can be defended and the price is attractive given the condition of the business, then likely you’ve got a good deal.
David Anderson You’ve contributed your talent and treasure to philanthropic causes serving children and the arts. Aside from the profit motive, what distinguishes for-profit from not-for-profit leadership dynamics?
Bill Achtmeyer The need to have broad consensus behind major decisions is much more accentuated in not-for-profits. This makes the power of the CEO and board discernibly different; there’s more work to be done to bring something to fruition. Leading change is harder because people are mission-driven and emotionally connected to the hallowed territory of their cause. For-profit CEOs take liberties and know that most constituencies will come along. Not-for-profit CEOs have to take not only the board along but also many more stakeholders. You can’t get there by edict because not everyone sees it as you do. You have to accept this to be successful.
David Anderson Has your service on charitable boards taught you skills that translate to the corporate world?
Bill Achtmeyer Yes, charitable boards provide a great arena to learn about meaningful stakeholder engagement. In the corporate world, I often see a knee-jerk reaction to stakeholder activism; a rush to mount a defence with lawyers or bankers. I’ve learned from charitable boards it’s better to engage people to understand their expectations and why they believe there is a gap between what we’re doing and what they think we should be doing. Activists are smart and articulate. You have to do your homework. John Donahoe, eBay’s CEO, mounted a strong defence against Carl Icahn over the PayPal divestiture. John wouldn’t have done it without Icahn’s activism. Icahn’s thesis was correct, even if his tactics were unnerving. This will happen more often as stakeholders scrutinize performance, as there’s a huge appetite for activism to get companies to do better. Discipline and patience will serve anyone well in the multi-stakeholder corporate world today.
David W. Anderson, MBA, PhD, ICD.D is president of The Anderson Governance Group in Toronto, an independent advisory firm dedicated to assisting boards and management teams enhance leadership performance. He advises directors, executives, investors and regulators based on his international research and practice. E-mail: firstname.lastname@example.org. Web: www.taggra.com.
Bill Achtmeyer — Biography
Primary roles Founder and Senior Managing Director, Parthenon; Global Leader, Parthenon-EY Strategy Services, Transaction Advisory Services, EY
Additional roles Chair of the Board of Trustees, Boston Symphony Orchestra; Overseer, Museum of Fine Arts Boston; Chair, Massachusetts High Technology Council; Chair, Tenacity; Vice-Chair and Board of Trustees, Belmont Hill School
Prior professional role Founder, Chair and Managing Partner, The Parthenon Group; Director, Bain & Co., Founder and Leader of the Mergers & Acquisitions/Integration Practice
Former chair Chair of the Board of Overseers, Tuck School of Business at Dartmouth College; Massachusetts Society for the Prevention of Cruelty Against Children
Former president Lawrence Academy Board of Trustees; Nashoba Brooks School
Former director Briggs & Stratton Corp.; Citizens Energy Corp.
Education MBA, Tuck School of Business, Dartmouth College; BA (Public and International Affairs), Woodrow Wilson School, Princeton University
Honours > Myra H. Kraft Award for Non-Profit Leadership, 2015 > Embracing the Legacy Award, Robert F. Kennedy Children’s Action Corps, 2014 > Overseers Medal Recipient, Tuck School of Business, Dartmouth College, 2012
Current age 60
Photography: Damian Strohmeyer