dispatches from the new world of work

My Kind of Acquisition

A couple of thoughts from my pile of tearouts during my just completed China trip. First:

I am considered to be an avowed enemy of acquisitions, and I can understand why. I do indeed decry the typical "Fat 'n Ugly + Fat 'n Ugly = Quick and slick" "logic" behind giant get-togethers of mediocrities for defensive purposes in industries in distress.

On the other hand, there is an acquisition type I applaud, and the Wall Street Journal recently (0703) featured just such a pairing. GE plans to take on Pratt & Whitney in the turboprop market. To spearhead the effort, GE has just completed the purchase of Walter Engines, an 85-year old firm from the Czech Republic—Walter, the WSJ reports, "earned a reputation ... for building rugged propeller engines used heavily in Eastern Europe and niche markets such as agriculture and cargo planes."

Bingo! Fill a need-hole by paying top dollar for a superb, well-regarded firm of modest size that complements your main business. Of course, achieving the desired result is not easy, as the melding of the desirable practices of a non-bureaucratic, independent, and proud firm into a Big Dog's corporate culture is very hard and delicate work—the failure rate is high. Still, the practice makes sense if you are willing to work patiently with such acquired companies.

Tom Peters posted this on 07/08/08.

Comments

John Chambers, Cisco's CEO, apparently said of M&As, "The marriage of equals never works".

Posted by Chetan Dhruve at July 8, 2008 12:20 PM

Did this synergy happen when AVCO-Lycoming was purchased by Textron?

Posted by Mike L. at July 9, 2008 3:50 AM

Well, for such M&As to work, it requires transactions to be driven by strategic considerations rather than power politics. Also, knowledge of the local market dynamics is very important. Companies therefore must be willing to spend more time on due diligence and have SOLID execution plans and MOST importantly, STICK TO IT!

Posted by Sriram Kannan at July 9, 2008 4:49 AM

A slightly immodest comparison, Tom: the GE/Walter deal is something like the deal that led Dun & Bradstreet to buy Hoover's (where I work) in 2003: established leader in a market buys a niche player that (a) covers a complementary niche where the big company doesn't yet compete and (b) already has competence in a domain (in our case, publishing business information online) where the big company knows it wants to get better.

So far, so good . . . :)

Posted by Tim Walker at July 9, 2008 1:27 PM