The Problems of Mergers
and Acquisitions
Herbert M. Sancianco a Philippine-
based professional marketer honed as
a business educator, soft-skills trainer,
market researcher, brand strategist,
and a corporate rehabilitator with
over 40 years of experience. He is an
author of three business books on
sales promotion, customer service,
and corporate rehabilitation. He just
finished writing a fourth book on sales
and trade management for FMCG
products. He can be contacted at
marketingpilosopo@yahoo.com.
© Business Expert Press 978-1-94897-622-0 (2018)
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Herbert M. Sancianco
Abstract: There is always a company out there regard-
less of its size and/or business age that is planning to
or has an intention of selling its business lock, stock,
and ­ barrel to whoever will be interested in buying
it for a good price that is mutually acceptable. There
are ­numerous r­easons for the business exit. Some
­companies who plan to grow their business portfolio
needs additional working capital to satisfy their expan-
sion goals over a forecasted timeline. Usually such a
company with this i­ntention will look for medium term
equity investors. But ­ before a ­successful transaction
can be achieved between buyer and seller in either sce-
nario, there are a variety of p
­ roblems that need to be
recognized and ­anticipated, as these are key concerns
in achieving the desired win-win deal. Moreover, there
are other ­problems that can plague the merger or acqui-
sition after the memorandum of agreement is signed,
and as the third party enters the business it bought or
invested as a working capitalist.
Keywords: consultant intervention, financial health,
investment payback, legal liabilities, longevity,
organization, product relevance, professional
competence, retirement
The journey begins with the reasons why a company
would like to divest or seek additional working capi-
tal. In like manner, why would another company want
to ­ acquire another company that may have a busi-
ness synergy to it or where an attractive opportunity
­presents i­ tself which can increase the acquirer’s business
­portfolio in its operating market or be an entry point for
an ­international business presence?
There have been cases where the acquirer buys
­another company for its philanthropic reasons or where
that targeted acquisition will be an image booster for the
acquirer’s company or product brand.
Expert Insights
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 The Problems of Mergers and Acquisitions
The Selling Reasons
Companies that would like to partially or
totally sell themselves for a good price are
due to the following:
■■ The key shareholders are getting old
and want to retire
This is the most prevalent reason for a
company, particularly for those operating
for 20 years or more. The founding fathers
have reached an emotional point where
they feel it is time to go and ­enjoy the
fruits of their hard work through the years.
Only a few of those with this reason
know how much their company is worth
as they may have financial consultants
in this regard.
For those with just an indicative ­selling
price in mind, which is usually from a
“gut-feel,” they will establish a range of
prices for the interested buying party to
mull over and affirm a commitment after
corporate due diligence work is completed.
■■ There isn’t an anointed one to carry
on the business
This is very much associated with the first
reason since no one among the senior
management staff is seen and favored as
an eligible candidate to take over the busi-
ness as a shareholder and partner.
This is a tragedy because the aging
owners never went out of their way to
adequately prepare for that day when
they would like to retire from the busi-
ness, particularly if the business remains
viable and profitable.
In fact, the company has no continu-
ity protocol program to address an issue
like this.
■■ The next generation is not interested
or partially interested to continue the
­family business
Family-owned and operated businesses
have this either as the first or second r­ eason
for divestment. Somehow the second gen-
eration (their children) did not show any
interest in continuing the family ­business
despite the best efforts of their parents to
woo them into the fold.
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After all, most parents would say that
they built the business for their children.
By observation through the years, the
second generation continuity is rare or
very few. Getting the next generation to
voluntarily agree and commit to continue
the business largely depends on how the
parents got the children to love the ­business
they started and nurtured and motivated
them to continue the family legacy.
I have often asked my students in gradu-
ate school who are taking up their master’s
degree and who are children of a family-
owned business if they are studying to take
over their parent’s company, and with that,
share some reasons for or against the idea.
I have learned from them the following:
a. Six out of 10 will take over the family
business because, as a first reason, it has
been there for decades and is rich in a
tradition which they feel they should
continue (e.g., bakery business, food
service restaurant, retailing, hotels,
food manufacturing). They feel it is
their destiny to do so.
The second reason is that they
can identify with the business model
and “love” the products it produces
(e.g., fashion design, furniture ­design)
or the service it renders to its target
customers (e.g., food s­ ervice catering,
commercial transportation). They
have very bright ideas on how to
­improve on the products or services
and make a big difference in upgrad-
ing the company’s operating system
and profitability.
The third and perhaps paramount
reason is that they want to be their
own boss, make very good money for
themselves, and be counted among
the rich and famous.
b. For those who will not continue the
family business, they say and feel it is
not their calling in life—they want to
pursue a different career path or blaze
their own trail and make a name for
themselves. For others, they don’t want
to experience the unhappy life they led
Expert Insights
 The Problems of Mergers and Acquisitions
while growing up because their parents
often argued about their business issues
in front them thereby causing them to
be emotionally affected—sometimes
scarred for life.
■■ Time to cut while the company is at
its business peak
Some sellers have this next reason since
they have this pragmatic view that they
built the company with very little capital
and grew it where the value of the business
and share value is at least 10 times more
from where they first started. They have
the so-called build and sell attitude, which
is usually a very rewarding proposition.
■■ There is an unsolicited offer
There are instances where a third party
will walk up to a company and express
their intent to buy that company at a
price that may be too good to be true. The
­buying party has many reasons for such
an intention.
The owners of the targeted company
will always express a big surprise over the
buying interest and sometimes be taken
aback. Unless the buying party’s timing
is just right, some of these targeted com-
panies may not go for the offer relative
to their emotional attachment they have
to the company which to begin with is
­doing very well and is a very good income
­provider for the shareholders.
If the timing is right however, where for
example, the company is facing a ­financial
stress for some time, the targeted owners
will gladly sell at a drop of a hat.
The Buying Reasons
■■ Business synergy
There are companies who will buy another
if the targeted firm has a fit in its overall
business model and paradigm.
For example, a dominant quick service
restaurant (QSR) selling burgers, shakes,
and fries will buy another QSR selling
­pizzas and pastas.
In a complementing move PepsiCo Inter-
national bought in the old millennium the
Pizza Hut, Taco Bell, and KFC companies
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as these acquisitions were key marketing
interests in expanding its beverage busi-
ness. It also acquired the Frito-Lay com-
pany that produces snack foods.
■■ Reduce the competitive threat
Companies who are the market leaders in
their product or service category will do this
to a competitor who they see as a threat to
their market dominance at a future time.
Conversely, companies who aspire to be
the market leader will likely acquire either
a competitor who is one rank higher than
them or one rank lower so that their com-
bined business ownership will be a force
to reckon with by the market leader—the
company they aspire to overtake in the
marketplace at a future time.
■■ Improve the corporate bottom line
Companies with several subsidiaries which
were acquired or started years earlier may
be dragging down the corporate bottom line.
There are at least two reasons for doing so.
The first reason may be related to coun-
try economics. A weak economy may be
negatively affecting that poor perform-
ing company due to its product which
may have demand issues that may be
­related to its price and where a downward
­adjustment may not deliver the aspired
results in terms of increased demand and
profitability.
Likewise, it may not make further sense
to continue its manufacturing facility in
an area whose cost of doing business is no
longer feasible nor profitable due to the
updated national or local government poli-
cies related to reduced tax incentives or
rising labor cost to name a few concerns.
Product obsolescence can be the next
reason as competition may have a more
­attractive product offer, for example, g­ eneric
medicines that offer the same relief as the
branded version but sold at a far cheaper
price. This may not be matched by the
product concerned.
■■ Build a conglomerate
There are businesses that have done so
well for themselves such that they have
earned very hefty profits over time.
Expert Insights
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