Devoted to Managers and those that seek to improve their management skills

Buffett is Skeptical About the Virtue of Most Mergers

Warren Buffett has always felt that many of the reasons given for mergers are less forthright than told by management or possibly even self-deception.

He says that the majority of mergers are usually driven by what he calls "animal spirits," where the key reason for the merger is to where the spirits encourage the CEO enlarge his managerial kingdom. That's usually the underlying reason for it. And historically it's been proven that they rarely pan out in the initial reasons given for doing it in the first place. One of the few managers in corporate history that could do this right and presumably for the right reasons was Jack Welch.

That wasn't the only ego factor involved either. Many times business leaders will look at other poorly performing businesses and believe that it is the managements performance alone that is the underlying problem and so secretly believes that they can turn the frog into a prince.

Buffett says concerning this urge that “We have tried occasionally to buy toads at bargain prices with results that have been chronicled in past reports. Clearly our kisses fell flat.”

He added that another thing CEOs need to consider is to be wary of those that are offering advice for you to do this - specifically investment bankers with vested interest in the outcome. He said: “Don’t ask the barber if you need a haircut.”

This is especially important in our specific time period, as there is money all over the place looking for someone to grab hold of it. We do need to be wary of this in our existing businesses as it relates to mergers and acquisitions. Just because you can do something and enlarge the size of a business has no connection to whether it's good for a business or whether it'll be profitable over the long haul.

This is one area where we need to be the most skeptical of all, specifically when money readily available and is agressively pursuing a place to call home.

Other Buffett Resources:

Company growth

“Everybody Else is Doing it”

MSU students have special visit with billionaire Warren Buffett

WARREN BUFFETT PHILOSOPHY II

Sticking to what you know  Core businesses

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