Everything ‘Succession’ gets wrong about M&A deals
The first episode of the new series of Succession concludes with a fierce bidding war between Logan Roy and his three children for the acquisition of Pierce Global Media. With both parties determined not to be outbid, the valuation of the business quickly escalates, with the three siblings Shiv, Roman and Kendall Roy eventually tabling a winning offer of $10bn.
While it made for an entertaining scene, it remains rather detached from the reality of acquiring a business. We spoke to a number of M&A experts and people with experience of deal-making to determine the key things the show got wrong – and any areas it may have got things right.
Where’s the due diligence?
Oliver Wilson, managing director of commercial loans at Shawbrook Bank, has helped a number of SMEs with refinancing, changes of ownership and acquisitions. Although he recognises the producers of the show were focused on crafting an entertaining scene, their biggest oversight was the lack of due diligence depicted in the episode.
“These deals are negotiated comprehensively by a range of advisers who will typically handle the intricacies such as valuation, legal and the strategic fit between the two businesses,” he says. “Each party will appoint representatives to act on their behalf and deal with the legal formalities, negotiate deal points and advise on the best ways to fund the transaction.”
All of these considerations went out the window in the show, as the Roy family went toe to toe in the bidding war.
Letting emotions get in the way of a good deal
Shiv, Roman and Kendall’s determination to outbid their father was largely motivated by Logan’s betrayal at the end of series three, in which he decides to sell the family business Waystar Royco, rather than pass it on to one of his children.
Their eagerness to seek revenge leads to the three improving their sealed bid by more than a billion dollars at a time and eventually, from $8bn to $10bn.
“I think it’s made quite clear within the episode that the pricing battle is an ego play and while ego can drive a huge number of decisions, the episode isn’t reflective of real-world corporate governance,” says Natalie Burns, strategy partner at brand agency UnitedUs. “In real M&A scenarios, businesses have to spend a great deal of time assessing the value of their assets: from the people, skills, capabilities and intellectual property, through to the brand itself – the value of the reputation.”
In the show, these details are sacrificed in favour of the speedy back and forth we see on-screen between the two family factions.
“The deal involves a lot of emotion, passion and vitriol and it is this, along with the excess, that makes the show so attractive,” says Matt Parker, CEO of technology business Babble. “But it also leads to some naïve decisions. In the real world, you can’t afford to let emotions drive your thinking.”
A lack of legal representation
A final mistake in Succession’s portrayal of business acquisitions is the lack of legal support during the bidding process. “At the risk of taking out the drama, where are the bankers, the CFO, the accountants, the office manager, or the lawyers?” asks M&A integration expert and BML Digital CTO Jaco Vermeulen.
By leaving out the lawyers, the bidding process is free to run on “ill-informed emotion”, rather than on due diligence. Vermeulen claims that this feeds into the classic “deals on a golf course” trope, often seen in TV shows, where billionaires can “just state money and a deal happens”.
“In the show, all that is shown is a verbal agreement with nothing closed and nothing binding,” he adds.
In reality, the process for making an M&A deal involves many more steps, which he outlines here:
- Bankers or brokers reach out to the market.
- Initial discussions go to either M&A leads in the business or appointed representatives of the parties, such as bankers, lawyers and M&A specialists.
- This is followed by a letter of intent, which is approved by the full board and all investors, with an indicative initial offer to progress to transaction due diligence.
- High-level transaction due diligence is conducted and can result in the retraction of a letter of intent.
- Next comes the actual bidding. If there are multiple interested parties, the bidding is likely managed by legal or banker representation, not the individual investors, although they may be present. Each successive bid requires a formal offer document.
- If the bid is accepted, then a formal deal is signed.
- More detailed due diligence on all aspects of the business is carried out, which may impact final valuation and fees.
- The deal closes and transfers of cash and shares are made.
- The businesses decouple, transition and integrate.
One thing Succession gets right
But, there are a couple of elements of the Pierce acquisition that the creators of Succession did get right, according to Luke Taylor, a non-executive director of Sentry Funding and co-founder of UnitedUs. The first is that, no matter what the market thinks, a company is worth what somebody is willing to pay. And the second is the intrinsic value in a strong brand.
“In the first episode of season four, the character T, who is advising the siblings over the phone, hits the nail on the head when he says the company is ‘worth what the top bidder will pay’. That’s ultimately the case,” he says.
“We’ve seen businesses such as Made.com go to market with a valuation of £775m, only to be sold for a fraction of that. The products and stock were not the drivers of the sale, the brand was. The reason Next acquired it was to keep that brand alive.”
Succession is entertaining, but that is all it can ever be. Certainly, business leaders shouldn’t take their cues from how the Roy family strikes deals or they could end up making costly errors or with a legal impasse on their hands.