Today's news about PepsiCo concluding a long-running offer to buy out two of its bottlers for almost $8 billion caps a nifty little run of recent M&A action. Add in Sprint Nextel Corp. acquiring Virgin Mobile USA, Bristol-Myers Squibb buying Medarex, and IBM nabbing SPSS Inc., and we have some impressive green shoots presaging a pickup in deals activity. These deals are nicely timed to tie in with the just-released "Mergers & Acquisitions 2009" Boardroom Briefing — the quarterly single-topic special reports issued by Directors & Boards.
Back to the PepsiCo deal. According to this report in the Wall Street Journal, after months at the negotiating table it took the CEO of PepsiCo inviting a director of Pepsi Bottling Group to her home, where they hashed out the final price, to make the deal happen. "Real deals are struck between people, not institutions," notes the WSJ. Rightly so.
I had that observation told to me personally 25 years ago from one of the most savvy dealmakers I ever met. "The most important facet of any transaction is to establish a personal relationship between the seller and the buyer — not as companies, but as individuals," said a fellow named William Fishman. When I met him in the early 1980s Fishman had built, over the course of the previous four decades as a serial acquirer, a multibillion-dollar company called ARA Services — now known as Aramark Corp. "Until the seller has faith and believes the buyer," Fishman added, "the transaction is a very cold and probably unsuccessful one." This is a story he told me to powerfully illustrate this fundamental law of M&A:
"I well remember one transaction where I had worked the better part of three years on acquiring a company in Chicago that we desired very much, and I wasn't getting anywhere. The company was a competitor, so there was a natural amount of skepticism and hostility between us.
"But one day I just happened to take this fellow whose business we were trying to acquire to a restaurant in the Drake Hotel in Chicago. The waiter came up — I knew the waiter, I had been there often — and my guest looked at the waiter and, in the middle of his sentence, broke out in tears weeping. Well, it turned out that the waiter had waited on my guest's father back on the West Side of Chicago, and had always taken good care of his father — who had just recently died.
"This fellow had a tough, hard shell, but he wasn't hard inside. When I understood what he was crying about, that's when he and I began to relate. Those are the kinds of things that get into an acquisition that finance people don't always understand."
End of Bill Fishman's story. But it seems to be the start of a new chapter in PepsiCo's growth for CEO Indra Nooyi. Yes, there are financial, legal, strategic, and tactical dimensions to getting a deal done. But ... never forget the human element. Click here to get access to a copy of our Boardroom Briefing "M&A 2009" report.