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Buying and Selling Companies is Big Business

Companies are commodities much like any other, bought and sold with the help and encouragement of the managers and acquisitions industry, in pursuit of corporate aims that rule for the time being - rightly or wrongly.

There appears to be no definitive test of corporate success. Profit growth alone may be at the expense of return on investment; cash generation may be at the expense of long-term expansion and even the apparently unarguable 'maximization of shareholder value' may have to be qualified in relation to timeframe. All of which allows the industrial manager a vital degree of flexibility, not only in setting his objectives, but also, later, in describing how he has managed to achieve them - or, alternatively, the unforeseeable factors which have prevented him from doing so. This is, of course, what makes markets. Adjustments are continually being made, and strategies reshaped. And to that end, companies can be regarded as commodities much like any other, bought and sold, with the help and encouragement of the mergers and questions industry, in pursuit of the corporate goals ruling for the time being.

In the 1920s one of Yale University's wealthier young undergraduates became famous for his threat to buy anyone who upset him. Without the same element of pique, yet buttressed by a high degree of financial sophistication, the same phenomenon enjoys a significant influence in Anglo-Saxon corporate life. Those unable to operate their assets at a sufficient profit have to surrender them to those who believe they can. Adam Smith's uncompromising world view has become institutionalized, through a process involving stockbrokers, accountants, public relations consultants and not least the financial press.

Buying and selling companies is big business. Most major companies now have a department, usually headed by a main boards director, responsible for corporate development. They may even have a corporate finance department. Either way the mission is the same; to develop and evaluate acquisition strategies and candidates. And they are served in this endeavor by battalions of corporate financiers, for whom a leading position in the frequently published merger and acquisition league tables is the recognized test of success.

How healthy is this? it is a phenomenon that is virtually absent in the economies against whom the Anglo-Saxon companies compete, eerily so given that the latter can hardly be said to have enjoyed the upper hand since the Second World War. Early in August last year the Financial Times commented n the performance of BTR's chief executive over the eight months since his appointment, observing that 'he has still not delivered the large acquisition that the UK industrial conglomerate needs... this has left the City's deal-starved financiers - their appetites whetted by the possibility of a Hanson bid for Imperial Chemical Industries - slavering for Mr. Jackson to demonstrate similar nerve in his acquisition policy... if a significant move fails to materialize, an increasing number of words way be needed to provided a given level of stimulus to the share price'.

The same article reported, incidentally, that BTR (which proceeded to feed the city with birds for Rockware and Hawker Siddeley) was selling its hosiery business. Are the pressures created by this approach likely to create businesses capable of becoming the innovators and low-cost producers of the future? On the assumption that making acquisitions has not yet become simply an end in itself (in which case questions about its purpose are irrelevant), questions raised by acquisition strategies, in particular the place of the management buyout in the overall M7A context, are well worth raising.