Friday, October 19, 2007

Recipe for Success

For your reading pleasure this weekend, O Faithful Acolytes, I have decided to pen a little riff inspired by the scandalette du jour now working its way through the twinned pythons of New York Society and the Oprah Winfrey Show audience. I do not speak of the minor éclat caused by news that un-French French President Nicolas Sarkozy and his wife of 11 years have finally divorced—"How quaint! How ... American!" No, I refer to that titillating mini-saga emerging from the seething cesspool known as childrens' cookbook publishing, what many are coming to call "L'affaire Seinfeld."

I will not bore you with the tawdry details of this dust-up, which you can read for yourselves in the Times article by Motoko Rich. (Now there's a name for you!) Suffice it to say that Jessica Seinfeld (pictured above), wife of the eponymously named comedian Jerry Seinfeld (how do they tell their bathroom towels apart?), and her publisher Harper Collins have been not-quite accused of not-quite stealing the ideas and several recipes in her book from a disturbingly similar ankle-biter cooking compendium composed by one Missy Chase Lapine. (Seriously: I'm not clever enough to make this stuff up.) It seems the basic idea of both books is to sneak healthy foods into the cotton candy dreck most children prefer, like spinach into brownies. Apparently, dastardly matriarchs have been betraying their progeny in like manner from time immemorial.

Anyway, I draw this little drama to your overextended attention not to discuss the wiles and deceptions of faithless Womankind (as I might), but rather to illustrate how similar the story of these books' publication is to the creation of an M&A deal. The parallels are striking, and the substitution of a few pinstripe suits and a few investment banking institutions for the frilly aprons and publishing houses of the original yields a story which matches several dealmaking experiences of my own and others almost exactly.

For those of you with a conference call to join or a client meeting to attend, the basic story is this: As for the dueling cookbooks described above, it is not the quality or content of the ideas that matter in a potential M&A deal, it is their timing and packaging. An essential corollary to this is that the attractiveness, broadly defined, of the promoter of the idea is important, too. Let me explain.

I do not know about cooking strategies to cope with picky eaters, but I can guarantee you from over twenty years experience that there is virtually no such thing as a completely new, original idea in M&A. Sure, investment bankers constantly wheedle their clients to allow them to pitch some "really interesting ideas," but the clients never take the meetings in the hope they will be shown something they have not already considered, and they are almost never disappointed in their expectations. Indeed, if I were a corporate executive who lives and breathes my business, and has worked in my industry for decades, I would be mighty worried if some wet-behind-the-ears Harvard Business School tyro from Goldman Sachs or Morgan Stanley showed me a good acquisition, merger, or divestiture idea that I had not already thought about exhaustively. So should my Board of Directors. Take it from me: if your idea is not completely stupid, the client has already seen it. Likewise, it is clear that neither author in our ink-stained story above came up with a tot feeding strategy not already discovered by generations of crafty mothers.

In contrast, timing is critical in M&A. The best acquisition idea in the world doesn't do you a bit of good if you can't get the attention of the object of your desire. The target has to be ready, hair washed, teeth brushed, and packing protection before she'll agree to meet you out behind the football field bleachers late at night. And she won't want to go to dinner with you if you are between paychecks and can only afford Arby's takeout. Timing is so important, in fact, it even trumps the quality of a deal idea. When the stars are aligned, even a lousy deal can—and will—get done. Think AOL-Time Warner. From the Age of Dinosaurs forward, good M&A bankers have always closed the sale not based on the Who or the Why of a deal, but on the When and the How.

Packaging is also critical, at least to the M&A banker who wants the assignment. Presentation matters to a CEO, if only to make sure the banker he or she chooses does not embarrass him or her in front of the Board of Directors. As we have discussed before, it is practically impossible for a client to evaluate the quality of a particular M&A banker's advice before a deal closes, and often quite difficult thereafter. Therefore, in order to pick an M&A banker from among the legions of identical-looking graduates from the same business schools pestering him for the assignment, a CEO must rely on reputation plus the appearance of plausible reliability. Reputation is what it is, so personal appearance, plausibility, and chemistry with the client—packaging—usually decides which banker gets the nod.

Try this little experiment at your next Manhattan cocktail party. When you meet someone who tells you they work in finance, try to determine whether he or she is in corporate finance or M&A before they tell you. If they are well- and expensively dressed, vaguely handsome (but not too attractive), are a smooth and persuasive conversationalist, and exude so much quiet confidence that you can't decide whether they are arrogant or not, six times out of ten that person will be a corp fin or M&A banker. (If they are disshevelled, unkempt, unattractive, slightly hostile or dismissive, and totally arrogant, on the other hand, you can bet good money that they are in a hedge fund. They are also probably worth a lot more money than the M&A banker.)

Now I do not know how Missy Chase Lapine stacks up against Jessica Seinfeld in the appearance and personality department, but I can tell from the article that she is not lacking in publishing experience, and her book idea is no worse than—in fact, is indistinguishable from—the one Ms Seinfeld pitched Harper Collins two weeks later. Nevertheless, Harper Collins chose Ms Seinfeld to do the deal, based, we can imagine, largely on the same criteria her agent used when she described her as “smart, stunning, and infinitely promotable.” Like I said, packaging matters.

There is one final wrinkle to our sorry little tale that seals its instructiveness for the student of investment banking and M&A. For, at the end of the day, a client trying to decide between two bankers for an M&A assignment is often stumped. As far as the client can tell, the finalists are completely indistinguishable, equally talented, and equally plausible—both perfectly acceptable candidates for the final nod. At that point, the client often makes the decision based on the name on each banker's card. No, not that name, silly. The name of his or her investment bank.

Not that infrequently, which firm the banker belongs to becomes the primary deciding factor, winning out over even superior talent and better personal chemistry. "Goldman Sachs" almost always trumps "NoName Capital Markets LLC," regardless of how superior the NoName banker may be. For there is an old saying circulating in the boardrooms of Corporate America and among D&O insurers everywhere:
No Director ever got sued for picking Goldman Sachs to execute his shitty, half-baked M&A deal.

I imagine the firm of Missy, Chase & Lapine lost to Seinfeld LLC for the very same reason.

© 2007 The Epicurean Dealmaker. All rights reserved.