M&A stands for "magic act." (mergers and acquisitions)

• Author: Falconi, Robert R.

Do you believe in magic? Do you believe the whole is greater than the sum of its parts? Do you believe two plus two equals five? If you answered "yes" to any of these questions, then you probably believe in acquisitions as a valuable strategy to grow a company.

You're not alone. Pick up any newspaper and you'll see that one company is buying another - and these are just the big deals that are being reported. It's amazing to me there's so much acquisitions activity, given all the negative data. Sharon Blanding, author of Acquisitions, writes that of the 56 major acquisitions she studied, only 13 were successful. A statistic like that gives credence to the opinion of one of my former bosses who used to say, "Two plus two does not equal five and seldom equals four." Given his success in creating and building a profitable company that has stood the test of time, I really can't dismiss his words.

GIVING DUE DILIGENCE ITS DUE

Despite this evidence, my current employer's management team believes in the merit of acquisitions. But don't confuse our beliefs with our practices, because we haven't actually made any acquisitions. It's kind of like eating vegetables. I believe in that concept, too. Yet, given the choice between a cheeseburger and a bowl of asparagus, I'm going with the burger.

Recently, we've devoted a lot of time, energy and resources looking for the "right" company to buy. We've gotten close, but something always happens to botch the deal. On more than one occasion, we've had to walk away when an owner got too greedy, confusing his love for his company with the worth of his company. Sometimes, owners are so bullish on their firm's future that visiting them becomes a trip to Fantasyland, where all business owners are paid twice what their companies are worth. Other times, the owners just change their minds. "When I saw how interested you were in my company, it got me to thinking that this is a darned good place to work. I don't want to sell."

On the plus side, just saying "no" has kept us from making any bad acquisitions, and we've learned a great deal about the due diligence process. We can do due diligence with the best of them. Given enough time, we can do enough due diligence to talk ourselves out of anything. "I don't think Bell's invention will ever take off. If people want to talk, it's easy enough to get on your horse and go see them."

Of course, some executives pull off acquisitions and make the whole trick look simple. These...