John Malmo is the Chairman Emeritus of Archer Malmo, and the post below is an excerpt from his 2003 book When on the mountain there is no tiger, Monkey Is King. A graduate of Boston University, Mr. Malmo worked in a variety of roles over the years before founding John Malmo Advertising in 1967, eventually merging with Ward Archer & Associates in 1991. His legendary insight and smart tone still resonate, and the lessons demonstrated in these stories are still relevant today. If you like this post and want to read more, simply request a copy of the full book, and we’ll send it along posthaste.
The simplest definition of due diligence is checking out the pig first to be sure you don’t buy a pig in a poke.
That could mean only weighing the pig, determining its age and health before purchase.
Yet due diligence should include ascertaining the cost of maintaining the pig, of processing it into bacon and ham or its resale value, depending on your intentions.
Likewise, due diligence in mergers and acquisitions is not merely assuring that you get the pig for which you pay. You should know also what, how, when and how much it will cost you to do with the pig that for which you bought it in the first place.
Most failed corporate mergers and acquisitions rot from lack of due diligence There’s a failure to get adequate, correct information, or to have a lucid and workable plan for life after merger or acquisition.
Take the $103.5 billion union of AOL and Time Warner.
The premerger promise was that strategic alliances could be formed between all of the parts that would create billions of dollars in advertising revenue.
It was the ultimate bundling approach to selling advertising media.
Large advertisers would be enticed, according to The Wall Street Journal, “…with the promise of space in Time, Inc. magazines, air time on Turner cable networks, spots on the America Online service and licensing opportunities with Warner Bros. film studio.”
This kind of media package looks good on paper. Yet advertisers like flexibility. Most don’t hanker to buy one huge package, because such packages include some of what they want a lot and some of what they don’t want at all.
In return for giving up flexibility, buyers expect handsome discounts on the pieces they covet.
In this case it meant that executives of some of the individual pieces of AOL-Time Warner would be unhappy. Each would hold that he could sell his medium individually for more than in a smorgasbord.
Gene DeWitt, former CEO of one of the world’s largest media buying agencies told the Journal, “The individual operations at AOL-Time Warner have no interest in working with each other, and no one in management has the power to make them.”
If you were basing a $103 billion merger on the success of selling packages of the new pieces, minimum due diligence ought to be making certain first that the pieces agree.
Success of any merger depends on an operating plan of the merged pieces. Due diligence includes developing that plan before the merger.
About Archer Malmo
Archer Malmo, with offices in Memphis, Tennessee, and Austin, Texas, combines brand thinking, data and technology to help growing brands adapt to the digital and creative complexities of today. Since 1952, we’ve continually evolved to changes in the industry, helping level the competitive playing field for midsize companies. The agency’s combination of discipline specialists, strategic orientation, creativity and culture yields strong client relationships and business results. With more than 150 people, Archer Malmo is one of the oldest independent agencies in the U.S. and has been recognized by Advertising Age and others as a “Best Place to Work” and has been named to the “Inc. 5000” list of fastest-growing private companies in America for five consecutive years.