One Question That Can Make Or Break A Merger Case

Over the past ten years hundreds of companies have made a case to the UK competition authorities seeking approval for their merger.

The way in which cases are argued and presented before the authorities varies widely. As a result, there are many lessons that can be learned from past practice, good and bad.

In this brief article I focus on one important aspect that crops up again and again. It concerns the following question:

–       How to make a case that fits together well?    –

A question to ask early

It is clearly a question that is best asked (and answered) early on in the process of developing the case for a merger.

Rubik

And yet, in the hurly burly of the deal, it is a question that is easy to overlook –  or to ask too late in the process – or to answer only partially.

Instead what tends to happen in these circumstances is that the different elements of the case emerge and evolve as the process unfolds.

Such an approach may have the advantage of flexibility  – but it also carries the risk that, once the walls are built, the roof won’t fit.

And that is indeed what happens in a surprising number of cases, resulting in

  • Wasted time and cost
  • A longer investigation –  and – in some cases
  • A poorer overall outcome for the merging parties.

A challenging question

Perhaps one of the reasons the question doesn’t always receive the timely attention it deserves is that there are a number of different aspects to it.

Here are the five I look at:

1. Are the arguments put forward internally consistent ?

  • When the individual building blocks of a case do not hang together well the credibility of the overall case suffers and the process takes longer, while inconsistencies are probed.
  • To take a simple example that has arisen many times: how well does the argument that acquisition is the only path sit with the proposition that entry into the business is easy and inexpensive?

2. How to ensure the case put forward remains consistent throughout the process ?

  • Changing tack on a major plank of a case during the process always raises questions in the agencies’ minds.
  • ‘Why”, they understandably ask, “should the new story we are being told be more credible than the old one (which we were assured was accurate)?”

3. How well is the overall story for the merger supported by the evidence advanced?

  • When these clash the agencies rightly question not only the particular piece of evidence concerned but – sometimes more damaging –  the coherence of the wider story.
  • For example: If the overarching story is that exit of the target company is inevitable in the absence of the deal, how well does this tally with the actions of the target in the past year or two?

4. Do the theory and evidence match?

  • When theory and evidence collide which, if either, will remain standing?
  • For example: where a case relies heavily on the theory that only two suppliers are needed to ensure a highly competitive outcome, how credible is that theory given the number of suppliers that customers actually shortlist?

5. How well integrated are the business, economic and legal arguments?

  • A particular risk is where separate submissions from legal advisers and economic advisers contain material that does not fit together well (or at worst is contradictory).
  • Another is when key analysis is identified and put forward too late in the day.

A powerful first step

The very process of asking each of these questions in a structured way, and with the right tools and techniques, is a powerful first step to:

  • understanding the real strength or weakness of the case right from the start
  • prioritising the evidence-gathering and analysis needed to make the strongest case
  • deciding how best to present the case
  • managing the five risks/opportunities I outlined above.

Even where it turns out that there is not an immediate or clear answer to one or more of these questions, identifying that fact can be crucial to managing the resulting risk, as well as the overall case.

                                                                                               © Adrian Payne 2013

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Material in this article is drawn from my training course – ‘Making a Merger Case: Best Practice and Common Pitfalls’.

The course examines lessons from over 500 past cases in each of the following areas: case preparation, case strategy, research and analysis, communication and presentation, and resources.

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