It is Better to Give than to Receive

I've read an interesting article in the Harvard Business Review by Roger Martin called M & A: The One Thing You Need to Get Right. He points out that all studies suggest that 70-90% of acquisitions end up destroying value and although the title oversells his idea, my experience does suggest there is a critical success factor that is often overlooked in our relentless focus on synergies and EDITDA multiples. In a nutshell he summarises his point as follows: "Companies that focus on what they are going to get from an acquisition are less likely to succeed than those that focus on what they have to give it".  

The article lists four areas where the acquiror can give something to its target. 

1. Be a smarter provider of capital. As an example lots of start up companies I see these days struggle to raise the finance to move their idea or project from development to deployment and their management can spend many months simply trying to raise funds whereas a larger company can generally fund these incremental projects from internal resources. 

2. Provide better managerial oversight.  I would express this as maybe wider or more experienced management rather than just better but I take the point that in some situations businesses have struggled under poor management and can be freed from that constraint.

3. Transfer valuable skills. As the article says "the skill should be critical to competitive advantage and more highly developed in the acquiror than in the acquisition". It reality this means a degree of honesty rarely found in the corporate world as you have to be completely objective on what skills you actually have and whether they are truly better than in the target. If these hurdles are meet then sensitivity is needed in handling the transfer and sensitivity is another attribute is short supply. When there is an honest assessment and a sensitive transfer then this can really create a lot of value.

4. Share valuable capabilities. In this case the sharing will probably happen in both directions with both give and take. It is certainly the case that larger companies can have capabilities, systems and assets  that smaller companies can utilise with no real increase in cost to the parent company. I also find that there is value creation in sharing networks of connections between businesses. 

I can think of examples from my corporate experience which illustrate some of these features such as the acquisition of Airtricty by SSE where the fledgling Irish energy supply business gained a lot by what SSE could bring and as a result grew tenfold in a few years. However, it also applies in the start up investment phase I now find myself involved with. Before investing I always ask myself; what can we add to this company by way of experience, connections and advice and in some cases even office space!

I guess that as in life so it is in M & A; it is better to give rather than to receive. 

Small is Beautiful

The book 'Small is Beautiful' by economist E F Schumacher was originally published at the time of the 1973 oil crisis. To quote Wikipedia "It is often used to champion small, appropriate technologies that are believed to empower people more, in contrast with phrases such as "bigger is better". I think these words could usefully be applied to the challenges facing the energy industry today when we are facing different challenges that may, with the benefit of hindsight, look like an energy crisis.

The last hundred and fifty or so years have seen the energy industry fixated with bigger is better. It has been about the larger power stations, heavier and deeper off shore platforms and bigger companies. I think this is, however, yesterday's trend. The future is smaller, more distributed and local. Here are four illustrations. 

1. More and more homes, schools and offices are fitting small solar systems and now this is frequently being combined with local storage. You can now install lithium ion batteries that are smaller than conventional gas boilers and mean that all you solar produced power can be consumed on site. These are small, personal decisions which are democratising and disrupting the big centralised electricity system.

2. The rise of unconventional oil and gas has transformed the economics of the fossil fuel industry. Regardless of the controversy around fracking one thing is clear. These wells are quicker and faster to develop than the pieces of giant industrial architecture that dominated the industry until recently and this is changing the nature of the commodity cycle and the politics of the energy industry.

3. Even the nuclear industry is being affected. If the 1600MW Hinkley Point C ever gets built I suspect it will mark the final death throes of the bigger is better mentality. The focus is now on so called small modular nuclear reactors which may be a fifth to a quarter of the size of Hinkley and stand a sporting chance of being connected with words not normally associated with nuclear power; 'on time and on budget'. 

4. The market share of the big energy suppliers has been in steep decline recently and we have seen the emergence of a range of smaller competitors with different business models as well as the growth of collective and mutual owned energy suppliers. I suspect that this trend is going to be a consistent feature of the market.

The challenge for the energy industry will be how it copes with the disruption that is bound to occur as we move from a bigger is better world to one where small is beautiful and diversity of scale is a strength. 

A Day in the Life....of Etosha National Park

Within a few minutes of entering the Etosha National Park in Namibia at sunrise we came across one of the most endangered animals in the world; the black rhino. It was a young male having his breakfast and we were close enough to hear what a noisy eater he was. We must have spent over half an hour watching him eat his way through several bushes.

When he had finished breakfast he decided it was time to cross the road and walked right in front of our vehicle, he was so close I could almost touch him. It was such a joy and a privilege to see such a majestic and rare creature.

After recovering our equilibrium we set off on the morning game drive through a landscape of every imaginable shade of brown and green with wildlife and bird life around every corner. We stopped for breakfast by a waterhole further into the park and at one point counted seven different species of animal. Gradually they started to edge towards the water and finally Impala, kudu, eland and zebra were all drinking at the same time.

And all this despite the fact that a group of male lions were sleeping under a tree only 50 or so metres away.

When we returned to the park in the afternoon we were naturally looking our for our breakfast buddy but instead of the young rhino there was an old bull elephant around the same spot. He was clearly in a grumpy mood and decided to take out his anger on a tree and as we watched he proceed to knock it over in three pushes.

We then headed to a different area where our guide thought there might be a leopard and we were in luck yet again as it was lying right by the road and waited patiently for us to take some photos before heading back into the bush. Within about five or six paces it was invisible.

After all this excitement we headed back to the waterhole where things were quieter although a giraffe was clearly in need of a good long drink.

Our guide felt this was a good time for a sundowner so out came an ice cold Windhoek lager and a gin and tonic and we were relaxing at the end of a great day when from our left what should appear but another young rhino.

He too was in need of a sundowner and was heading straight for the waterhole in front of us.  As our day had started, we had the honour of watching a rhino in its natural habit.

Our guide, Imelda, said that we had been truly blessed all day. How right she was. 

A Day in the Life....of Etosha National Park

Within a few minutes of entering the Etosha National Park in Namibia at sunrise we came across one of the most endangered animals in the world; the black rhino. It was a young male having his breakfast and we were close enough to hear what a noisy eater he was. We must have spent over half an hour watching him eat his way through several bushes.

When he had finished breakfast he decided it was time to cross the road and walked right in front of our vehicle, he was so close I could almost touch him. It was such a joy and a privilege to see such a majestic and rare creature.

After recovering our equilibrium we set off on the morning game drive through a landscape of every imaginable shade of brown and green with wildlife and bird life around every corner. We stopped for breakfast by a waterhole further into the park and at one point counted seven different species of animal. Gradually they started to edge towards the water and finally Impala, kudu, eland and zebra were all drinking at the same time.

And all this despite the fact that a group of male lions were sleeping under a tree only 50 or so metres away.

When we returned to the park in the afternoon we were naturally looking our for our breakfast buddy but instead of the young rhino there was an old bull elephant around the same spot. He was clearly in a grumpy mood and decided to take out his anger on a tree and as we watched he proceed to knock it over in three pushes.

We then headed to a different area where our guide thought there might be a leopard and we were in luck yet again as it was lying right by the road and waited patiently for us to take some photos before heading back into the bush. Within about five or six paces it was invisible.

After all this excitement we headed back to the waterhole where things were quieter although a giraffe was clearly in need of a good long drink.

Our guide felt this was a good time for a sundowner so out came an ice cold Windhoek lager and a gin and tonic and we were relaxing at the end of a great day when from our left what should appear but another young rhino.

He too was in need of a sundowner and was heading straight for the waterhole in front of us.  As our day had started, we had the honour of watching a rhino in its natural habit.

Our guide, Imelda, said that we had been truly blessed all day. How right she was.