Experience: a key success factor in mergers and acquisitions transactions

According to the book How Big Things Get Done: The Surprising Factors That Determine the Fate of Every Project, From Home Renovations to Space Exploration and Everything In Between, a second principle is particularly important for mergers and acquisitions (M&A) deals: the importance of practical experience. 

According to the authors, project participants' lack of practical experience is one of the main reasons a project may fail to achieve the expected success. The authors recount several examples of projects entrusted to people without sufficient practical experience, leading to their downfall. 

Among these examples, one occurred close to home when the Canadian government purchased two icebreakers. Instead of procuring them from experienced manufacturers, the government decided, for political reasons, to award the contract to Canadian companies with no experience in the matter. This decision may have been seen as a good political move, but it was not without consequences for taxpayers. A report by the Parliamentary Budget Officer subsequently revealed that the estimated costs of purchasing these two icebreakers, initially $2.6 billion, had soared to $7.25 billion.

 

Different Types of Experiences

Why favour experience? How does it make someone better at their job? The authors explain that this is not necessarily because an experienced person knows more than a less experienced person. Indeed, the less experienced person may still have an excellent intellectual knowledge of a given subject, having read or taken a course on the subject, for example. The real advantage of experience lies in the fact that it allows one to develop a type of skill that the author calls tacit knowledge, as opposed to "explicit" knowledge, which is learned in manuals. However, implicit knowledge is the most valuable between these two types of knowledge.

According to the authors, tacit knowledge would improve the quality of a person’s judgement. This would allow the judgement to reach a level of expertise that the authors call "competent intuition." Research would even show that an expert's intuition is highly reliable when the right conditions are met.

These concepts of tacit knowledge and competent intuition resonate with what Aristotle considered the most remarkable intellectual virtue, namely practical wisdom. According to Aristotle, true knowledge is passed through explicit (or intellectual) knowledge, but only when that explicit knowledge is combined with long practical experience. Aristotle had a specific term for this practical wisdom: phronesis. 

 

Practical Experience at the Heart of Success in Mergers and Acquisitions

How is this relevant in the field of M&A?

As mergers and acquisitions practitioners, it is easy to see that, as with the large projects described by the authors, the parties involved in a merger or acquisition do not often prioritize experience when hiring professionals. This can apply to lawyers, accountants, tax advisors, or other types of advisors engaged in an M&A transaction. Too often, a party will prioritize the continuity of the relationship with its usual advisors or decide based on who offers the lowest costs. In both cases, the criterion of experience is relegated to the background.

By selecting its advisors this way, a party does not maximize phronesis among its advisors. As a result, it runs a greater risk that its M&A transaction will not go as planned and will result in additional costs or liabilities that could have been avoided if it had been better advised.

An experienced advisor, whether legally, financially, or in accounting, will have acquired, through their experiences, knowledge and reflexes that a simple intellectual understanding of the issues cannot match. Having been confronted with many situations likely to occur in the context of an M&A transaction, they will be better able to identify the real risks for their client. They will thus be able to focus their negotiation capital on the points that really matter to their client rather than wasting it on points that, ultimately, do not matter and will only, in the end, slow down the pace of the transaction and antagonize the other parties. They will also be better equipped to find creative solutions to break a deadlock in negotiations.

A party involved in a merger and acquisition transaction and concerned with further maximizing phronesis among its advisors should not stop at the general M&A experience of its advisors. It should go a step further and ensure that they have experience in the very type of transaction it is about to undertake. For example, a company that has retained an advisor's services in connection with the buyback of one of its shareholders' stakes should ask itself whether the same advisor is the right choice to accompany it in the acquisition of its largest competitor. Before engaging advisors who work in a multidisciplinary team, a party would also do well to ensure that each team member is sufficiently experienced, or supervised by someone who is.

In short, this second principle from the book "How Big Things Get Done: The Surprising Factors that Determine the Fate of Every Project, from Home Renovations to Space Exploration and everything in Between," when applied to mergers and acquisitions, teaches us this: surround yourself with advisors who have practical experience, not just a good pedigree or good intellectual knowledge. In other words, surround yourself with advisors with phronesis, like at BCF.