Caltech: Art of the M&A Deal

Bypassing the basics, Caltech merger course cuts to the integration chase.

As merger and acquisition programs have grown into staples of more than a dozen business-school executive education programs, many have favored weeklong marathons that touch on every aspect of deal-making in a sort of “M&A boot camp.”

The California Institute of Technology, however, takes a different path in its two-day “Successful Acquisition Integration” course, being offered this year April 11—12, July 25—26, and October 14—15 in Pasadena. It aims for a class size of 20 to 25 students, and encourages companies to send teams from general management and specific departments.

Rather than offer the nuts and bolts of valuation strategies, merger accounting, and tax structure—which, along with negotiation exercises and elaborate case studies, are central to most longer programs—Caltech focuses on “what companies should do to set the stage for integration,” says instructor Matthew Sagal. A self-described “refugee from AT&T, Lucent, and Agere Systems,” he now relishes sharing personal experiences about the do’s and don’ts of merger activity. A second instructor, Dan Watson, has worked on mergers with Rolm & Haas and Eastman Chemical, while Gene Slowinski, a Rutgers University professor, is the sole member of the team with business-school teaching credentials.

Indeed, Caltech has no business school itself. For three years now, it has included the M&A program as part of its Industrial Research Center, under what the school calls its “outreach to technology-based industry.”

Leadership of the program by business executives is a strength and not a weakness, insists Sagal. He and Watson currently are senior partners with Alliance Management Group, a consulting firm specializing in deals for clients in a range of industries. Sagal formerly was vice president of business development for Lucent Microelectronics. Slowinski, who is also director of strategic alliance research at Rutgers’s Graduate School of Management, is a managing partner of Alliance.

With integration of the companies always in mind, the $1,795 program is organized to take participants chronologically through the stages of internal planning, negotiating the deal, and the due-diligence process leading up to closure. And the class is filled with personal accounts of successful tactics, peppered with pitfalls and pratfalls, that few professors could muster. (At many university M&A programs, executives with acquisition experience are called in to help tie up the last day’s sessions.)

Sagal says that “we use one real example from Dan Watson’s experience” for a longer exercise in one of the program’s two workshop sessions. But in all cases, “what we do is disguised.” And for good reason. “We’re under confidentiality agreements,” notes Sagal. “Also, we don’t want to beat up on companies. That would divert focus from our messages.”

In addition, the instructors have pieced together their own artificial case—assembled from the acquisition disappointments they’ve encountered during the years—that “takes all of the common detonators of deal-making and puts them in one place,” according to Sagal.

“What we’re really trying to do is get down below the 50,000-foot level, to give the participants some hands-on techniques for dealing with problem areas,” he adds. “We’ll lay on them, in a fire hose way, a dozen that we’ve used successfully. Then they can say, this one will work fine for my company, and this one may not.”

The idea, of course, is to keep integration processes—during the first 100 days and the first year—in mind throughout the various predeal stages.

In the first workshop, participant teams practice developing acquisition integration plans during the due-diligence stage. The second workshop concentrates on the actual integration of a smaller firm with a larger one. Typical hurdles include “overcoming the problem of stakeholder buy-in”—from customers, suppliers, alliance partners, and others—and preparing for rapid responses when the unexpected occurs. Communication tips are also provided for marketing the deal internally and externally, motivating staff, controlling the office rumor mill, and retaining key employees. (There’s a segment on dealing with “survivor’s syndrome” among employees who stay on.)

“We oppose the notion that acquisition is a science,” says Sagal. “It’s an art form, not rocket science.”

Indeed, at Caltech, rocket science is taught just down the hall.

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