Last weeks Star Tribune article on the negative impact the Albertson’s acquisition is having on Super Value was a powerful reminder of Moody’s report that half of all non financial business failures in 2009 were Private Equity owned.
It is significant that a high failure rate among the people with the most money and best access to information and superior process (private equity funds, large corporations) indicates a need for improving the decision making process at the front end. Away from transaction driven (broker driven) deals to a more internalized and measured approach to criteria and candidate selection.
Is it easier to make better decisions within smaller companies?
In the Super Value story above, it appears that size of the acquisition must have driven the targeting of a very few mega candidates.
Rather than slow steady growth that would not ruin the brand if big problems were encountered with a single transaction, companies risk everything with each new acquisition.
With the decade long troubled history of acquisitions, I recommend Warren Buffet’s comments about evaluating each new acquisition target ;
” Just think of all the other parts of life where people offer only encouraging words — “You should do this!” — because that’s the only way they get paid (real estate agents, stock brokers, the list goes on).
And Mr. Buffett has trained his sociologist’s eye on this phenomenon more broadly, too. In his 1989 letter to shareholders, he famously wrote about the “institutional imperative,” which describes, among other things, how an entire organization can rise up to help a boss justify some deal he’s inclined to do, regardless of its merit”
And of course, my favorite Warren Buffetism; ”
Don’t ask the barber if you need a haircut”