In the wake of Dixons Carphone’s merger, what lessons can retailers learn to ensure their mergers are successful long term?
There are many pieces of research out there about how M&A activity nearly always fails to generate the promised value. One study puts the rate of success at fewer than one in five. Why? The answer lies in human systematic biases.
First, there is a bias towards optimism. There is no doubt that at the start of any of these discussions there is a tendency to sweep under the carpet some differences that might prove to be severe later. When envisaging tying the knot, it is completely normal to not work too hard at catastrophising and working out how the relationship will survive any future disaster. Thank heavens, or none of these M&As would happen.
Second, there is a tendency to think strategically and not in human terms.
The fact is that a corporation is nothing more than a group of people trying to achieve a common goal. How strange, then, that in thinking about strategic issues we tend to do so in terms of market position, assets, geographic reach, etc.
Should we not be thinking more about how the fragile, complex and absolutely essential fabric of people who make up the firm can be stitched together? In the end, assets and so on can be bought and sold and a market position can be rebuilt, but if the people aren’t there then there is no company.
Third, for ambitious people the idea of being part of something bigger is seductive. There is something compelling about, say, being a part of the FTSE 100, about the prestige and glamour.
This can create a classic agency issue where the needs of the management overtake those of shareholders. Good boards will tackle this issue explicitly in their deliberations, both among themselves and with their teams. This bias is so strong that any M&A project needs to automatically be greeted with a high degree of scepticism – a hurdle that should be hard to overcome.
Finally there is a tendency to think that the wedding bell is the final bell, rather than the opening one. Despite the many hours of (totally absorbing) work involved in getting the deal done, the late nights in lawyers’ offices, the closing celebrations etc., the real slog starts when the deal is over.
For a week or two there is a honeymoon, but after that comes the unrelenting business of making one life together.
So no wonder this doesn’t always work. But when it does, it is truly fantastic. I have found that our new colleagues from both sides of Dixons Carphone are bright, talented, pragmatic and sensible. I have been delighted by the sense of rolled-up sleeves and just getting on with it. For us, opening seven store-in-stores on day one was a huge achievement, and never has the phrase ‘here we go again’ been more appropriate as we look to reach 30 by Christmas. On day one we also integrated five departments, and we will push this hard over the coming months. But, more importantly, we will start the long, slow process of thinking like one company.
There will, I am sure, be difficult days ahead but, like a great marriage, if everybody is focused on building one great family then the rewards for all can be enormous.
- Sebastian James is group chief executive of Dixons Carphone