The best mergers get the timing right

JACOLINE LOEWEN

There are many reasons for companies to acquire another business and merge it with their own. One type of mergers-and-acquisitions (M&A) strategy that’s popular with firms needing the new, new thing is to use it as a substitute for their own R&D.

For example, Vancouver-based Flickr, a photo-sharing application, was acquired by Yahoo Inc. for the reported sum of $35 million. Yahoo has in-house R&D but it recognizes that by acquiring unique technologies of startups such as Flickr, it can build market share quickly.

The objective for the M&A of smaller companies set by Yahoo in the Flickr case, or by other large technology firms such as Google or Blackberry, has been carefully defined. It is to supplement in-house R&D to remain on the cutting edge of their industries. John Banks teaches MBA students about M&A at Waterloo, Ont.’s Wilfrid Laurier University, and he reinforces the importance of identifying the purpose of buying a business.

“Regardless of how attractive the deal price or fortuitous the opportunity,” he explains, “it is essential that the impact the acquisition is intended to have on the firm’s strategic direction be both understood and realistic for the transaction to be truly successful.”

Companies that use the M&A process to supplement their R&D must have access to rigorous corporate finance skills in order to stick to their mandate. “The assessment needs to be especially meticulous,” Mr. Banks says, “since research shows that this particular aspect of M&A is often characterized by incomplete if not irrational thinking.”

A smaller firm is often attractive as an acquisition target because it can have the flexibility of a speed boat that manoeuvres rapidly around larger ships. “A company should challenge bigger companies,” says Amar Varma, founder of Xtreme Labs – which provides mobile experiences to firms – and who mentored Rypple and its acquisition by Salesforce. “There is the ability to think several strategies ahead of the larger company – a company should either be an opportunity as an acquisition, or a threat.”

The issue for a larger company choosing to use M&A to develop an innovative product pipeline is the risk of missing the window of opportunity to buy. “An early-stage company is rushing towards bankruptcy and they need cash to survive,” Mr. Varma explains.

Being acquired can alleviate that immediate pressure for cash but as he warns: “The larger company only has the window of opportunity to do an acquisition while a company is small enough to need the cash. Once the company gets to a larger size, it reaches a more stable scale and then it no longer needs the acquisition to grow further. It can go it alone.”

When a firm uses M&A to supplement its R&D, the corporate finance process needs to be highly streamlined and earmarked as mission-critical. An engineer who sold his company several years ago to a large U.S. firm, and who is still working at the large company to transition the technology, spoke anonymously about his experience. “It's estimated that approximately 70 per cent of M&As fail.

“For an M&A to work well, there needs to be strategic alignment for the bigger vision of the deal, an appropriate integration plan that minimizes day-to-day disruptions, and very importantly, alignment and consideration for the cultural fit of both companies.”

The first six months will be the most challenging, as the small firm is usually superior and this can cause resentment. The need for a cultural fit suddenly becomes startlingly clear. The on-boarding entrepreneurs will need a top executive in the firm to champion the acquisition and remind them of all the good reasons for the M&A.

“It becomes important to keep employees of the acquiree informed about what the M&A means for them – this can be a confusing time for acquiree employees who may feel their jobs are at risk and could consider leaving if they're not well-informed,” the engineer explains.

The engineer is satisfied with his decision to be acquired. “I do agree that an M&A can be a viable alternative to organic growth. For the company buying a business – the acquirer – their benefits in our case included immediate access to intellectual property, business and technical domain expertise in terms of talent, and also our customers.

“For my business – the acquiree – our benefits included gaining access to more R&D, as well as sales and marketing resources that accelerated business growth. Our M&A resulted in improved sales reach, cost optimization, and increased revenues.”

Jacoline Loewen is a director at Crosbie, which focuses on succession advice for family businesses and closely held small to medium-sized enterprises. Crosbie develops customized strategies, particularly in relation to M&A, financing and corporate strategy matters. Ms. Loewen is also the author of Money Magnet: How to Attract Investors to Your Business. You can follow her on Twitter @jacolineloewen.

Dominate Your Industry: How to Become the Best in Your Field

Image credit: Shutterstock

The notion of a miraculous genius being born smarter and more capable than the rest of us mere mortals charms our curiosity. Robert Greene, author of the popular The 48 Laws of Power (Penguin, 2000), would disagree. The fascination we have in prodigies, he says, is "bogus. It's completely bogus." Exceptional talent is about hard work, he says.

Greene studied the lives of exceptionally successful people for his latest book, Mastery (Viking/Penguin, 2012). He says that there is no such thing as being born into superior success. Rather, those politicians, entrepreneurs, scientists, athletes and artists who rise above the rest in their field, achieving what he calls a "high-level intuitive feel" for their specialty, have an unyielding focus and work ethic.

"It's not a question of some natural talent or brilliance that you have, it's that you have reached that level of experience or practice," Greene told Entrepreneur.com. "We have to get rid of that old-fashioned notion of genius and creativity." He holds himself to the standard he preaches, having put in more 20,000 hours researching and writing his last five books.

Robert Greene

Image credit: Susan Anderson

In Mastery, Greene examines the cultural poster-children for natural-born genius: Mozart and Einstein. For example, by the time he was 9 years old, Mozart had already put in 10,000 to 20,000 hours of work, equaling the efforts of an average person in his or her 20s, says Greene. Einstein attributed his own success to persistence, he says.

Greene developed a near cult-following for his methodical and -- some say -- Machiavellian breakdown of power and the people who wield it in The 48 Laws of Power. Part of what makes Greene popular is that he studies powerful people and then breaks down their process such that others can emulate it. Here are recommendations from Greene for entrepreneurs eager to be the next Steve Jobs.

1. Chose a topic to focus on that you are deeply in love with.
"Masters and highly successful people are emotionally and personally engaged in their work" on a level beyond intellectual curiosity, Greene says. It's the personal commitment to a topic, problem or skill that is ultimately necessary for motivating and maintaining the long hours and fervent curiosity required to rise to the level of "mastery" in a field. "Otherwise you are never going to have the energy, the patience, the persistence, the ability to put up with the criticism, you will give up too easily, you won't push through all the crap the world is going to throw at you."
  
2. Skip all the extra school. Learn by doing.
According to Greene, learning entrepreneurship in school is inane. "Being an entrepreneur is making something, it's like Legos," Greene says and the best way to become an entrepreneur is to try building businesses.

Henry Ford's first two automobile companies failed miserably, notes Greene. "You want to actually psychologically desire failure because it is how you are going to learn." If you aren't going to start your own business, at least work in as small a company as possible to learn as many skills as possible. Avoid large corporations and business school, Greene says. As an entrepreneur, "you are going to hire the people that have the MBAs. They are going to bring in that nuts-and-bolts knowledge."

3. Don't focus on making money in your 20s.
"Tune out the idea of making your first million. It's about learning. You are there to accumulate as much experience building a business and you want to build several, if possible," says Greene. In the first five to 10 years after college, pursue experience over money. You will learn more than you could earn in those years.

4. When you have some experience, select a mentor.
When selecting a mentor, look for somebody who is already doing what you see yourself doing in five to 10 years, says Greene. If you are going to try to approach a master to be your mentor, wait to do so until you have already started amassing a body of work.

A healthy mentorship relationship is like that between a parent and a child, says Greene. A good mentor should be older than you and at a point in his or her career that he or she is wants to give back. Personality is important, too. "You want somebody who matches your spirit. If you are a very rebellious type, you don't want a stuffy conservative type mentor," says Greene.



5. Be flexible and creative.
For the book, Greene interviewed Paul Graham, the computer programmer entrepreneur who started Viaweb, a company acquired by Yahoo in 1998 to become the Yahoo Store, and a partner of Y Combinator, an accelerator for startup entrepreneurs. In the highly competitive interview process for Y Combinator, Graham "can tell after one minute if he has the next Zuckerberg or this guy is useless, and it is because they are open-minded, they're flexible and they love, they are excited, they have a childlike interest," says Greene. Building a company will inevitably confront you with unexpected challenges, and your ability to adjust your path to deal with those surprises is critical.

Catherine Clifford

How Consumers Are Using Their Phones, And What It Means

By: Josh Luger

dMobile is no longer a communications utility, but a media distribution hub. According to eMarketer, mobile now accounts for 12 percent of Americans' media consumption time, triple its share in 2009.

Where is this consumer attention being focused?

The biggest beneficiaries have been mobile apps. Time spent on apps dwarfs time spent on the mobile Web, and smartphone owners now spend 127 minutes per day in mobile apps.

In a recent report from BI Intelligence, we analyze the main mobile usage trends developers and publishers should consider to be successful in mobile, detail how users are consuming content on their mobile devices, take a look at the most popular mobile activities, and examine how mobile usage is an additive activity.

Here's an overview of the four usage trends developers and publishers should consider: 

The rise of gaming: Games are the largest mobile app category and the biggest money-maker in the app stores, accounting for 70% of Apple's top-grossing apps. However, even with the most addictive games, consumers' attention is fleeting and companies run the risk of becoming "one-hit wonders." 

Mobile-social synergies: Social networking apps are the second largest time bucket for mobile users. 39% of mobile users access social networks. This includes mobile versions of desktop favorites, as well as mobile-first networks like Instagram. Mobile holds promise for the social category, but monetization is far from a sure thing. 

The piggyback rule: The only tried-and-true way for a mobile success is to take a popular usage category and build a product that piggybacks on that activity to provide a unique mobile-native experience. Instagram did it with photos, "Angry Birds" with games, but other usage categories — news, weather, travel, video etc. — are waiting for a similar hit.

Portal erosion: Mobile is a fragmented space, and consumers seem to like it that way. No one has succeeded aggregating services via a single app or mobile website. The desktop portal is fading with the advent of mobile. Yahoo Mail Traffic declined 12% in the 12 months leading up to December 2012. Carrier attempts to build mobile portals have failed miserably. 

Read more: http://www.businessinsider.com/how-consumers-are-using-their-phones-2013-5#ixzz2UDokhvuB

CEOs are Terrible at Management

 

 

Yahoo CEO Marissa Mayer: Is she listening to eople management, people inside her company? (Image credit: Getty Images via @daylife)

A new study shows that CEOs are doing a lousy job when it comes to people management. The study, a joint project by the Center for Leadership Development and Research at Stanford’s Graduate School of  Business, Stanford’s Rock Center for Corporate Governance and The Miles Group, a consulting firm in New York that focuses on C-suites and corporate boards, found that both CEOs and boards are overly focused on the bottom line, at the expense of mentoring and engaging their boards. The survey polled 160 CEOs and directors of North American public and private companies.

One of the questions to boards of directors: Rank the top weakness of your CEO. “Mentoring skills” and “board engagement” tied for first place. “This signals that directors are clearly concerned about their CEOs’ ability to mentor top talent,” said Stephen Miles, CEO of The Miles Group, in a statement. “Focusing on drivers such as developing the next generation of leadership is essential to planning beyond the next quarter and avoiding the short-term thinking that inhibits growth.”

It makes sense to me that boards are preoccupied with financial measurements. But the study found that the attention given to talent development and mentoring was at rock bottom. The survey asked boards and CEOs about the weighting they give to various aspects of CEO performance. The most important thing, rated at 41%, was “accounting, operating or stock price performance.” The weighting given to people performance was incredibly low, with “succession planning” getting just a 5% rating and and “workplace safety” just 2%.

The researchers say that CEOs need to reach beyond numbers and care about people management. Two other statistics from the survey that underline how disengaged CEOs are from concern about employees: When asked about their CEOs’ greatest strengths, 70% rated “decision-making skills” at the top. At the bottom: 27% said “compassion/empathy,” 23% said “mentoring skills/developing internal talent” and just 23% said “listening skills.” The lowest-rated skill was “conflict management.” Likewise, when asked about CEOs’ biggest weaknesses, 24% said “mentoring skills” and 22% said “sharing leadership/delegation skills.”

Also striking is the fact that a sizable majority of directors (83%) and boards (64%) agree that the CEO evaluation process should rely on a balanced approach between financial performance and nonfinancial measurements. “Unfortunately, the truth of the matter is that the CEO evaluation process is not that balanced,” said Stanford’s David Larcker, co-director of the Center for Leadership Development in a statement. “Amid growing calls for integrating reporting and corporate social responsibility, companies are still behind the times when it comes to developing reliable and valid measures of nonfinancial performance metrics.”

More results from the study:

-          Directors don’t rate their CEOs highly. Only 41% of directors say their CEO is in the top 20% of their peers and 17% say their CEO is below the 60^th percentile.

-          A sizable minority, 10%, say they have never evaluated their CEO.

-          CEOs who are evaluated, agree with the marks they get. “Shareholders have to wonder at the objectivity of the evaluation process,” said Larcker. “It’s hard to believe that boards are pushing CEOs on their evaluations if they pretty much agree with their evaluation.”

-          Many directors forgive CEOs for legal and regulatory violations. This is one of the most striking results of the study. When asked about unexpected litigation against the company, a significant minority of directors, 27%, said that it would have no impact on a CEO’s performance evaluation, while 24% said that regulatory problems would have no impact. Shouldn’t CEOs be held accountable for legal and regulatory lapses? At least directors were unforgiving about ethical violations and a failure to be transparent with the board. A full 100% said their CEOs would get worse performance evaluations in the face of ethical problems.

I agree with the study’s authors that in the ideal world, CEOs would care about people management and they would be grooming successors to step in should something go awry. But I also understand boards’ and bosses’ preoccupation with the bottom line.

Also I can think of two recent examples of companies where the CEOs left abruptly under unexpected circumstances and the companies reached outside for replacements who, thus far, have arguably done a good job—better, perhaps, than someone from inside would have done. At Yahoo last year, Scott Thompson had been CEO for just four months when activist investor Daniel Loeb, who opposed Thompson’s appointment, sent a letter to the board revealing that Thompson had lied about his credentials. Thompson, who was an outside hire from PayPayl, had zero time to groom a successor, so Yahoo reached outside again and hired Marissa Mayer from Google. Though she’s been in the post for just a year and may still hit roadblocks in her efforts to revive the struggling company, Yahoo’s stock has risen from $15 when she took the helm to $26.

Another example: Struggling big box retailer Best Buy lost its CEO, Brian Dunn, suddenly last April after his inappropriate relationship with a female subordinate came to light. An insider, director G. Mike Mikan, served as interim CEO for four months. Then the company hired Frenchman Hubert Joly, who had been running a Minneapolis travel company called Carlson. Though Best Buy’s stock fell from $20 when Joly came on board to $11 in January, he has managed to revive the company’s fortunes and bring the share price back up to $26. It’s not clear that an insider could have done a better job.

Maybe I’m guilty, like directors and CEOS, of focusing too much on the bottom line here, but in the end, that’s what shareholders value. Though I agree with the Stanford study authors that in an ideal world, CEOs would channel more of their energy toward listening to the people inside their companies and developing talent from within.

  Susan Adams Forbes Staff