Another Reason Being a Follower Sucks - It Hurts M&A Performance

I read a quote recently in a business book that I wanted to share:  "Life is like a dogsled team / If you ain't the lead dog, the scenery never changes."

Basically, being a follower sucks.  There is no such thing as a world-class follower.  Who remembers the loser in the last 5 Super Bowls?  Exactly.

So with that rant out of the way, I was heartened to see new proof of the lameness of being a follower as it relates to M&A.  For those who have read my blog before, you know my relatively low opinion of M&A.  It is a great vehicle to destroy shareholder value, get bankers rich and feed the ego of some wanting-to-be-visionary management person or team.

The February 26, 2008 New York Times had an interesting article entitled "Mergers in a Time of Bears" which generally affirms my distaste for M&A and fully proves my stance on followership.

Excerpted portions of the article are below:

"Most mergers fail.

If that's not a bona fide fact, plenty of smart people think it is.  McKinsey & Company says it's true.  Harvard, too.  Booz Allen Hamilton, KPMG, A.T. Kearney - the list goes on.  If a deal enriches an acquirers' shareholders, the statistics say, it is probably an accident.

But a new study puts a twist on the conventional wisdom.  It's not that all deals fail.  It's just that timing appears to be everything.  Deals made at the very beginning of a merger cycle regularly succeed.  It's the rest that fall flat.

Deals struck in the first 15% of a consolidation wave tend to do well, at least as measured by the acquirer's share performance against that of the broad market.  The duds come later, when copycats jump on the bandwagon.  Even in the merger game, there is a first-mover advantage."

Do we need more proof that followership is not the way to go.  Yes, being the first requires guts and a certain risk tolerance in any endeavor including M&A, but why would you buy when the best targets are taken and the remaining ones are being valued higher because of a perceived supply-demand imbalance?  If you think M&A is the way to go (I'd advise against this), at least ensure you're not following the lead of others.  Be the best practice - don't follow it.