merger, acquisition, synergy, time's up, blog, Toby Elwin

Time’s up for merger and acquisition synergy

The mergers and acquisitions world sprinkles potential deals with a bit of pixie dust called synergy. Synergy is neither rational, functional, nor logical.

If HR used the word synergy in an accounting meeting? Laughed out of the room. If HR or human capital used the word synergy in a corporate finance discussion? The time value of money, that is rational. What will it cost? What return will it realize? When will it realize that return? All rational.

Synergy? Synergy is more a pagan fairy than rational way to make a deal.

human capital risk, cover, Toby Elwin, blog, beta, investment

Human capital beta is investment risk beta

Human capital management is motivation management.  No matter the IQ of an individual or the collected experience of the team without motivation there is opportunity lost. Human capital risk is real, but mainly divorced from analytic and assessment rigor. There is something missing in how to evaluate a a firm opportunity risk. To maximize return on investment you need to maximize return on involvement. I’ve worked in post-merger integration environments for more than 15 years and until you account for the talent you acquire, you have not accounted for risk. Starting in 2007 I began to think about how to evaluate talent and human capital risk in initial assessment.  This deck was a working draft of my thoughts with the objective to sit in a room and deliver a true, front-end human capital assessment to an investor. You can download Adobe Acrobat or PowerPoint version just …

mergers and acquisitions systems thinking, Toby Elwin, blog

Mergers and acquisitions systems thinking strategies, part 3

Systems thinking strategies for mergers and acquisitions (M&A) provide better integration valuations and post-merger operations. With mergers and acquisitions systems thinking the organization’s view is made of several components that interact with each other while simultaneously act as part of a whole. Systems theory helps explain dynamic interrelationship of several parts, beyond information technology or back office functions. Mergers and Acquisitions Systems Thinking No matter the motive for M&A the real work comes with integration.  A systems view for organizations presents organizations as dynamic entities that continually interact with their environment.  Workforce efficiencies, scale efficiencies, combined technology, and market expansion commonly fall under the synergy tag. Synergy seems like a hollow word, but synergy attempts to describe cost efficiencies that occur when companies consolidate into 1 company through a merger or acquisition.  Post-merger integration is where the components disrupt or combine to create a new …

monkey, board of directors, meeting, Toby Elwin, blog

Mergers and acquisitions systems thinking strategies, part 2

When evaluating merger integration risk the reality is true integration risk identification can only happen with an evaluation of systems integration. Without front-end, due diligence on human capital integration then too often the deal becomes a post-merger write-off. The result: wasted opportunity, multiples on paper only, and “synergies” left back on the deal table or with the executive hand-shake.

Evaluating risk, financial model, competency model, Toby Elwin, blog

Evaluating risk: financial models versus competency models, part 2

Models attempt to identify the assets that have value.  How to manage those assets.  And how to strategically turn these assets into money.  This is a second, follow-up, post comparing financial models to competency models to evaluate risk. As I mentioned in that post, typical financial models, and their build-outs, inherently, ignore important aspects of real-world behavior, models are truly as much an art as a science in their mathematical reasoning and interpretations. While financial models look to identify financial strengths and weaknesses of organizations, competency models try to identify critical knowledge, ability, and skills needed to lead and run organizations. Typical due diligence and valuation involves tangible and intangible research.  Tangible assets are usually classified as physical assets like inventories, machinery, buildings, and land. Intangible assets are usually classified as patents, licences, processes, and intellectual property, the knowledge of …

goodwill, human capital, risk, Toby Elwin, blog

Discounted risk is human capital risk

Many private equity and venture capital firms claim to rely on the quality of entrepreneur to determine funding. But rarely is this human “quality” represented in measurable, comparable assessments at least as measurable as weighted average cost of capital, discounted cash flow, capital asset pricing model, risk-adjusted rate of return, and other abstract financial models. Human capital is the only asset that is not tangibly owned, however human capital risk is very tangible: Compliance – Financial or reputation damage to the organization due to failures to meet legal or regulatory requirements; Productivity – Loss of productivity or output due to under-skilled or under-motivated employees; or an organizational culture that does not encourage discretionary effort (the extra contribution over and above required to keep the boss off your back) from employees; and Growth – Failing to maximize organizational capability or to identify and achieve …

venture capital, return, private equity, Toby Elwin, Harvard Business Review

Venture Capital and the descent into irrelevance

The bigger the risk, the bigger the reward. Elemental finance: you assume the amount of risk suitable for an expected payoff. You assume bigger risk and its bigger payoff with the full caveat that there is an equally big downside loss that could happen. Invest in a money market and get slow, steady, decimal-point-% returns; you sleep well knowing your risk is low and what to expect. Invest in emerging markets, a start up, or unproven technology with wildly fluctuating uncertainty and huge range of possible returns; you get potential sleepless nights worrying about losing your entire investment or planning a safe harbor for your potential windfall. If venture capital (VC) is to assume its traditional place as the fuel for innovation than a 2% average quarterly return from 1981-2009, as well as a glut of investor money sitting around …

human capital, risk, evaluation, criteria

Human capital risk, now that’s real risk

You commonly hear an equity firm or VC partner claim, we invest in the people and when it comes to costs, human capital usually represents nearly 70% of all operating costs. Human capital risk is the real risk, but most investment firms don’t focus investment decisions and deal valuation not quantifying the people or human risk.  The overwhelming focus for investors is on quantifying risk by analyzing: Market growth or potential, Market size, Expected rate of return, and Expected financial risk Their decision to invest becomes a decision to assume the correct amount of risk for the projected payoff. However, the overwhelming valuations of risk are deeply flawed. The gamble, or risk is not on market or legal risk, but really a the risk of a team to deliver something within a certain time and within a certain budget. In other …

human capital, risk, lever, tangible, intangible, Toby Elwin, blog

Human capital assessments — the symptom or the disease

The drive to evaluate operations and to contain costs is mistakenly applied as an operational issue across the board.  Too often human capital assessments lumped into the systems theory world of process and become a technical asset for management’s diagnostic view for cuts. The result becomes an assessment or evaluation process that is really the disease responsible for symptoms such as high turnover, low morale, and mismanagement. Human capital is a sociological asset, an asset that does take up to 70% of your costs, but an asset that not treated like a process map or put on an accelerated depreciation schedule. Human capital, like all capital, however, is an asset that is open to waste, depletion, or improvement. Human Capital Leaves at 5pm Human capital also has the same risk associated with other capital options and in the world of …

champion, duckboat, venture capital, Boston

Notes from Boston: the state of US venture capital

This was originally posted in the nowEurope, where I post as a contributor. nowEurope reported on technology innovation in Central Europe Centrope ICT Technology Transfer. CENTROPE is the integration and cooperation of the quadrangle borders between the Czech Republic, Slovakia, Hungary and Austria. Here is the article, as originally posted: In Boston, I recently attended the Annual VC Outlook Dinner, hosted by The Indus Entrepreneurs (TiE), the world’s largest not-for-profit organization for entrepreneurs. The evening provided a snapshot of the investment climate here in the United States. Some of these insights may apply to other parts of the world, including Central Europe. The evening included a panel discussion and dialogue.  The panel was made up of representatives from six leading US venture capital firms: Highland Capital Partners; Battery Ventures; TVM Capital; Atlas Venture; Bain Capital Ventures; Commonwealth Capital Ventures; and Greylock Partners These …