I was having a breakfast meeting with a banking friend who had recently been through a tortuous experience. His start-up had been acquired by a major traditional bank, and it ended with blood on the floor. The start-up got squeezed into the Empire, and it literally was like something from Star Wars with the start-up acquisition being the rebellion force against the Empire’s massive operations.
Stifling creativity and speed, the start-up found itself lost in a sea of corporate faces and suits, who couldn’t work out why or how the acquisition fit. The main instigators of the acquisition had moved on, and the rest of the organisation was left to work out the mess.
No wonder my friend calls M&A Murder and Assassination rather than Merger and Acquisition.
It reminded me that M&A is one of the key parts of financial services where machine learning and artificial intelligence is in the back row. M&A is hugely emotional – you only need to read Barbarians at the Gate to know this – and involves a lot of ego management and humble pie. After all, imagine that you’ve built a business from nothing and you love this business. It’s got you to where you are today and then suddenly it’s acquired – whether friendly or hostile – and you see your baby let go or taken from your arms. That’s a tough one.
I sensed this as I talked with my friend. It’s like an open wound and even though he’s now moved on, banked his investment in the start-up, made a few million, he’s still upset that his baby was squashed in the banking empire.
To be honest, I see this quite a lot but I see it particularly when a large, traditional firm buys a small, nimble start-up. In the ideal world, the start-up should be left to dance on its own with support from the parent. Some banks do this quite well. They let the acquired firm reside within the Empire, but don’t touch it. They let it continue on its own path and direction, but with a little discussion and input from the powers that be.
It’s when the small, nimble start-up has to merge into the large, traditional operations that the troubles begin. And one thing that stands out for me in all these conversations is the human dimension of such change.
Taking a company and merging it with another is not simply a case of 123. Some people try and do it by the numbers. Marketing merge ops and headcount is reduced by a third; sales the same; service the same; and so on and so forth. Tick box, push button, all systems go.
No. That’s not the way it should be. It should be reviewed on an individual by individual basis, whether they come from the old firm or the acquired company. Where do they fit? What skills and talents do they offer? How could they contribute to a new, combined structure?
As I say, M&A is not a machine or numbers process, but a human process of change and emotion as one group lose their direction whilst the others are trying to incorporate it. It’s a tough process for both sides, but particularly the acquired firm who are often nervous about the future as they are the prey and the acquirer the predator.
Anyways, if you want to find one area where machines will not take-over, then it’s in the take-over processes of M&A, or Murder and Assassination if you prefer.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...