Sharon Sobol Jordan is the CEO of the Centers for Families and Children , as well as a dear friend and client. She writes about institutionalizing innovation and positive disruption on her blog, Innovation Inside. This collaborative post is being simultaneously published there.
By Sharon Sobol Jordan and Jackie Acho
M&A is at an all time high.
U.S. companies have proposed or agreed to $627.95 billion worth of mergers or acquisitions this year, the most at this point since Dealogic started tracking figures in 1995.
– The Wall Street Journal, May 5, 2014
And these corporate takeovers are the only thing currently fueling the stock market, otherwise “stuck in low gear” according to the WSJ. Is this a good thing?
Growth for growth’s sake is not a good thing. Let’s be honest, M&A is the oldest trick in the book for growth. It can be a way of growing without really innovating in large organizations, and often helps for-profits drive growth in their share price and expansion in their P/E ratio. These are the large organizations that fail to create new ideas, technologies, or solutions themselves, and instead try to solve their innovation shortcomings by pouncing on smaller entrepreneurial companies that remind them of who they used to be. Sometimes, organizations simply buy revenues. Sometimes, they conveniently absorb the competition. Is this the highest and best use for M&A strategy?
M&A can be a good thing when done for the right reasons and done well. Co-creation is the most compelling reason to look at merger – a blending of capabilities to do more than either organization can do alone. Merging for this reason is not for the fainthearted. It takes a long time and a lot of work to settle in and reach its full potential for growth and innovation – and ultimately impact.
Can the whole be greater than the sum of the parts in a merger? How do you know when that’s true?
Our 2011 merger of the Center for Families and Children (CFC), West Side Ecumenical Ministries (WSEM) and El Barrio to form The Centers, a large social service agency in Northeast Ohio – proves it can. Check out this equation:
22.5 + 9.3 = 45
Those of you doing the math will realize there is something strange. It’s actually encouraging. Here’s why: $45.0M is the revenues of The Centers today, which is 13.2M more revenue than the “parts” were generating alone.
Here’s another encouraging equation that doesn’t add up:
12,600 + 4,400 = 20,000.
because The Centers serves 3,000 more people today than both organizations did pre-merger.
We did M&A differently at The Centers, with co-creation in mind. We:
- Treated it as merger of equals even though CFC’s revenue was $22.5 million and WSEM and El Barrio together was $9.3 million. The goal of the merger was to leverage the best of both organizations. The CEO’s of CFC and WSEM set this tone, and a combined Board and senior staff followed suit.
- Seized the opportunity to co-create a new future together. Rather than the larger organization devouring the smaller, we sought to create something new together. We knew that to realize the promise of the merger, we had to incorporate the best of each organization into the new organization we were becoming. We seized this unique moment in time by developing a strategic plan with ambitious goals for what we could do together – goals we could not have achieved alone.
- Realized it’s not about winners and losers. Facing the future together and learning from each other as collaborators with a competitive advantage can generate far more leverage than a one sided takeover that doesn’t optimize across the strengths of both organizations or remaining independent and competing against each other. Even with significant organizational culture differences – and we had many – we have come together around what matters. While we still have our struggles, our “win-win” approach to this merger continues to lead us to the right solutions inside and has enhanced our brand and reputation outside as well.
The inconvenient truth is that co-creation is neither easy nor automatic with a merger. It rocked The Centers’ steady ship, but with our dedicated staff team, resilient staff leadership, the backing of our Board and funders, and a clear strategy to anchor us through the storm, we have emerged stronger. Mergers take a long time to settle in large organizations, and it’s still work for us at The Centers.
But, there is one thing we know for sure that keeps us going — the whole is greater than the sum of the parts, just as it should be. And the benefits of this merger go far beyond growth in our revenue numbers. We have set our sights high on impact – lasting positive change at scale – and we are working in new and different ways together and are excited by the results. Let’s hope the for-profit CEO’s involved in all of the M&A right now not only have this same math in mind, but also do it for the right reasons. With $628 billion wagered, there is a lot at stake.