What Most Stock Market Quarters Are Never Told About M&A

Do you wish that stock market regulators would insist on disclosures about actual discounted cash flows and pay-backs from corporate acquisitions? Executives can merge these incremental figures with existing operations in such ways as to disguise the most unproductive transactions with your precious capital! Small investors cannot be blamed for being abused in respect of these important rights. Much of the problem relates to issues of opportunity costing apart from segregation, making transparent evaluation of M&A (Merger and Acquisition) moves of the past nearly impossible.

The bad news which is often hidden from stock market eyes is that M&A mostly runs up against huge obstacles of conflicting company cultures. This is a nebulous concept and often ignored when companies decide to move on to each other’s Boards, or to form a new joint entity. It is not possible for small stake holders to question such transactions, though share valuation has often been the subject of regulator and legal scrutinizes. Unfortunately, share valuations in M&A represent even less than the tips of icebergs, because many merged or acquired companies may lose hidden future values in such transactions.

Company culture is difficult for even executives to identify and measure, to say nothing of stock market analysts in the ring side of action. A Mission Statement may not cover all the core values of a company, and the management in reality, may pay just lip service to it in any case. Only stake holders with decades of transactional experience may be aware of the culture of a company, and even they may not be able to predict its fate when confronted with the norms and values of another entity. This is not to say that all M&A is bad, but simply to underscore the importance of company cultures in the matter, and the problems of precise measurement, forecasting, and management.

Fortunately, all is not lost for the stock market investor in the matter of M&A risks. Pro-active statements by management teams from both sides about how cultural issues will be managed can assuage fears and doubts. Careful insights about differences in company cultures are first steps towards eventual resolution and isolation of key performance parameters. Cultural autonomy for acquired units where appropriate, is also recommended practices in M&A transactions.

Company culture matters most in trans-national M&A and in cases of vertical and horizontal integration as well. Stock market circles can rest easy when former competitors come together, because their differences are more likely to be product or service oriented than rooted in deep cultural practices. However, ancillary industries, distribution tiers, and foreign markets, may hide large differences in how business is approached when companies look at them from the inside.

Be sure to review potential clashes of company cultures when you next encounter M&A in your stock market portfolio.