The Urge to Merge: A Public Company Disease

TAGs: Business, Calvin Ayre, online gaming companies

MongolInvasionMost mergers fail. In fact, it’s been the big joke among investment bankers and lawyers for the past 40 years; one of the more recent jokes heard around the water coolers at accounting and consulting firms like Deloitte & Touche is that the failure rate of mergers, which is estimated at 50 percent (defined by their failure to drive up shareholder value), is as high as the divorce rate. What’s even funnier is that the underlying reasons for their failures are surprisingly similar, too: a clash of egos, culture and goals.

Considering the sudden wave of mergers we’re seeing in the online gaming industry, it would seem that there are a number of delusional companies out there that somehow believe that they are immune to this “Public Company disease” that I like to call “The Urge to Merge.” They need to be reminded of some of the more notorious merger failures that have occurred across varying industries: AOL & Time Warner, HP & Compaq, Alcatel & Lucent, Daimler Benz & Chrysler, Excite & @Home, JDS Uniphase & SDL, Mattel & The Learning Company, Borland& Ashton Tate, Novell & WordPerfect, and National Semiconductor & Fairchild Semiconductor. All failed mergers.

All things considered, then, it would be extremely optimistic, naïve, and even arrogant to think that the merger or consolidation of any two online poker companies will somehow prove history wrong and transform the online gaming industry.

When much of the focus is placed on cost synergies and attaining growth, which is what we’re looking at here, there isn’t enough time or thought leftover to create a proper strategy – a painstakingly detailed and carefully planned execution strategy that will put more money into the hands of shareholders.

By definition, a merger is when both businesses dissolve and fold their assets and liabilities into a newly created third entity. Common business sense dictates that you can’t take two companies, throw them together and create one big brand that customers will suddenly buy into and want more of; if either one of those companies couldn’t take their brand to new heights in their own right – how will they be able to do that now that they have merged?

Privately held companies, because they are usually run by the owners, do not suffer from this “Urge to Merge” because they know the following: 1. The distraction will take two companies out of focus for, in some cases, a couple of years. 2. When the dust settles the new merged entity will still really just be one company; meaning there is actually less competition. 3. In gaming, there will never be only one company; so smaller companies actually benefit from this extra room to grow created by a merger. 4. Smaller companies inevitably pick up some talent from the staff ejected by layoffs (or from the staff who just plain quit out of frustration)…meaning mergers actually are a great force for sending the merged companies’ domain knowledge out into the private competition. 5. Organic growth, if done right, is an exhilarating environment – making it easy to keep your key team together.

All in all…if I were running a private company I would clap every time I read another merger rumour story and hope like hell that some of them actually pull the trigger. It’s not a coincidence that the biggest online gaming company in the world is private. I predicted this back in the late 90’s. The growth potential for the other private companies is very good – so I predict a gradual takeover of the industry by strong private brands over the next 10 years. This not only applies to the companies that still take US business, but will also include strong contenders out of the East; and the European public companies will be trampled under the hoofs of that advancing horde, in a reenactment of the Mongols and Huns of the past. The war is just starting.


views and opinions expressed are those of the author and do not necessarily reflect those of