M&A Ethics and Governance

  • This topic has 3 replies, 4 voices, and was last updated 1 year ago by Alina.
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  • #57510
    Wilhelm Lee
    Participant

    I worked for a company that went through two M&A’s. For the operations, the results were mixed at best. The second time, more than 300 people lost their jobs, myself included. I can see some of the owners and stakeholders making financial gains tough.

    Through this course, I learned that my experience is hardly unique, as 50% or more M&A transactions are considered to be failures.

    I am all for free market and capitalism, but at the end of the day, is it not cash flow generated through operations that determines the value of a business? If a small group of people make financial gains by buying and selling companies, but at the expense of the operations (including employees), are they not killing the goose that laid the golden eggs? With the attention on ESG in recent years, is this being discussed at all?

    #78583
    Shantaram Nadkarni
    Participant

    Operations is certainly critical function, but not at the expense of two people doing the same job. This is the usual thought process and is justified through labor cuts. It is the low hanging fruit to tackle.

    #78828
    Jeff Sewell
    Participant

    Unfortunately, this is a downside of capitalism if you are on the receiving end of the lay-off. However, in many countries business are privately held entities that can be bought and sold as the ownership desires. In other countries there is a great deal of regulation or government ownership that changes this approach. In either instance the value of a company isn’t only in operational capabilities. Value can be garnered from intellectual property, available cash, customer base, assets, etc… Leveraged buy-outs have always recognized this approach.

    #78847
    Alina
    Participant

    Interesting approach. Your statement “is it not cash flow generated through operations that determines the value of a business? If a small group of people make financial gains by buying and selling companies, but at the expense of the operations (including employees), are they not killing the goose that laid the golden eggs?” is very proletarian and more suited for a socialistic type society I believe. In a capitalistic society you should think of it this way: those few people that make a lot of money through the deal or cost optimization or whatever they are implementing that has lay-offs included will then go ahead and invest that money again. Most such individuals or entities will keep moving the capital to keep it growing and make them additional returns. This capital will most likely go into more lucrative businesses than the one that was liquidated or reduced, which had it been thriving or necessary or at its optimal state it would not have been able to be reduced in the first place. The new business the profits will be invested in will in turn create new jobs and new growth opportunities for society and most probably for the previously laid off people. Mind you not, upskilling or reskilling might be necessary for said laid off people but at the end of it they will also enjoy being in a more relevant job and field with better opportunities, albeit the challenge of the transition. That’s part of economic and societal growth, jobs get eliminated and new jobs get created, all backed by the capital markets moving investors money along the chain of old business and new business. This should be embraced as this supports innovation and progress, which is most driven by the promise of financial gains, as long as it does not involve any fraud or illegal activities of course.

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