M&A: Murders & Executions


In reflection upon Clarence B. Jones’s speech at the Ross School of Business at the University of Michigan, I do agree that business school students and large businesses are sometimes blindly “fiddling while Rome burns.”  Broadly, it is vital to acknowledge that businesses constantly operate in competitive and shifting environments across the globe.  As such, business leaders must embark on new strategies to maintain an edge over the competition.  Last year marked a record number of deals in the merger and acquisitions (M&A) space.  In M&A, Company A either purchases or merges with Company B in an effort to exploit accretive financial advantages.  In other words, this type of business activity typically consolidates competitive entities in the hopes of driving greater sales, profits and shareholder wealth accumulation.  Think McDonalds and Chipotle, whom actually later divorced each other in 2006.

However, M&A can artificially and unproductively disrupt the organic growth of healthy companies.  In leveraged buyouts that occurred during the U.S.’s credit boom years of 2002-2006, over a dozen well-established companies were purchased by private equity firms and then bogged down with high levels of unsustainable debt.  The Tribune Company, publisher of The Los Angeles Times and The Chicago Tribune, was bought out for $12 billion by Sam Zell in 2007.  Today, the Tribune is on the cusp of breaching its debt covenants to its lenders and facing an ugly default.  According to 2008 article in the International Herald Tribune, some of the company’s bonds trade for as little as 9 cents on the dollar, and the “Tribune looks to be the megadeal most at risk.”  Thus, Jones’s speech gains true credibility as the world’s largest banks offer the best salaries to future investment bankers.  We need to look beyond the traditional cash flow and balance sheet metrics of buyouts and focus on the real people behind those very companies.

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