Saturday, July 25, 2009

J. Fred Weston & the origin of synergy

Professor J. Fred Weston has died at age 93. Fred was a giant in the field of M&A. He arrived at UCLA from Chicago in 1949 and over his career wrote 32 books and 147 journal articles, many of which dealt with M&A. He mentored many outstanding graduate students, including Nobel laureate Bill Sharpe.

I worked with Fred and had the privilege of taking over as Faculty Director for UCLA Anderson's Executive Program on Mergers & Acquisitions from him in 2005. Fred continued to speak in the program. When I introduced him as the "John Wooden of M&A" (referring to UCLA's legendary basketball coach), it was not an overstatement.

I recall Fred telling the story about how the word synergy came to be used in corporate deal making. The year was 1950, and Fred was at lunch in Westwood with executives from a nascent industry that would later become aerospace. Fred saw a drink menu on the table that promoted Irish Coffee, The Perfect Synergy. (Irish Coffee blends coffee and irish whiskey.)

Not knowing what synergy meant, Fred looked up the term after he returned to his office at UCLA and saw synergy = the interaction of two or more agents so that their combined effect is greater than the sum of their individual effects. "Now that's what an M&A is supposed to do," thought Fred. He started using synergy in his writings to characterize successful deals, and the term became a cornerstone of academic and professional thinking.

Fred, I miss the synergy we shared, and I know many others do also.

Friday, July 24, 2009

Changing Japan's M&A culture over a beer?

Strapping two leaky canoes together will not improve buoyancy. And merging two weak companies rarely strengthens the combined entity. M&A is no super glue for struggling enterprises.

Successful M&A activity is a thoughtful, strategic build on a company's core competency.

Nevertheless, Japan's business culture has traditionally assumed that mergers are for the weak and are an admission of failure. As The Economist (July 18, 2009) says about Japanese corporate marriages: "Most deals involve firms in distress."

So the announcement that Kirin and Suntory (both successful Japanese brewers) are discussing a $41 billion merger might signal that a new generation of corporate development thinking is arising within the country.

Indeed many Japanese middle-market firms across all industries were begun after WW II and are led by aging founders. Many of these companies have focused on a contracting local market and do not have scale and capital to compete globally.

Could Japan's M&A attitude be changed over a couple of beers?
February 8, 2010 -- Update...

The Kirin and Suntory merger talks fail to come to fruition. The collapse is viewed as a setback for strategic consolidation and efficiency in Japan.