by admincf | Nov 15, 2025 | Insight, Newsroom
When the rescue becomes more expensive than the problem
“Don't throw good money after bad!” This quote from stock market legend André Kostolany has stuck with me – somewhere between a failed dot-com investment and a glass of red wine. And it immediately popped back into my head when a private equity fund presented me with one of those very special ideas: fixing through acquisition.
The story went something like this: there was a portfolio company that just wouldn't perform. Sure, the algebraic sign before the result were still positive, but the number behind it? Miles away from what had been imagined in the business case. When I asked about the likely causes, the partner in charge promptly replied: “The processes are the problem.” The solution? Already at hand. They simply wanted to buy another company in the same industry, one with functioning processes, take them over, and presto, the business would be up and running.
Admittedly, Kostolany's warning does not apply entirely here. His advice is aimed at passive investments, especially stock purchases. But in the case of a private equity fund, one is anything but passive. One can actively intervene and make things happen. And the proposed acquisition would be just that: active intervention. So it is definitely worth examining the matter thoroughly instead of dismissing it outright.
First step – understand the problem...
There are no blanket solutions, neither the knee-jerk reaction of “just don't pump any more money into it” nor the optimistic “it'll be fine.” In M&A business, you need a keen eye for detail: identify problems precisely and uncover causes consistently.
What does it mean in concrete terms when something is not running smoothly? Is there a lack of effective access to the market? Are the quality of products or services insufficient? Is the level of automation too low, which in turn prolongs process times or causes personnel costs to skyrocket?
Let's be honest: saying “it's down to the processes” doesn't get you very far either. Processes run through the entire value chain at a wide variety of points. Which processes exactly are causing problems? Why can't they simply be adapted? Is the IT application landscape blocking progress? Is there a lack of digitalization?
In fact, sometimes there is simply a lack of the necessary scale to achieve economies of scale that competitors have long been exploiting. Even then, however, an acquisition is no guarantee of success, as the Getir/Gorillas transaction three years ago impressively demonstrated.
...then step two – select the solution
The question “What should the target look like?” could be answered very simply: it simply needs a tailor-made solution for this specific problem. But how can you really recognize this? How can you know that what the target brings to the table is actually the right solution that will ultimately get both companies back on track?
Let's take sales processes as an example. Even if both sides sell the same products, that doesn't guarantee that the sales processes will also work in a different market. And that different market doesn't even have to be a different country. Just think of B2B versus B2C. And just because a target group falls into the B2B scheme by definition, that doesn't mean that everyone there thinks like a huge corporation.
The deeper the solution is anchored within the organization, the more difficult it is to transfer. An interesting case: The company provides services to consumers. Branch-based, very labor-intensive, short interaction time with the customer. The processes for service provision work well in principle. Quality and efficiency are right. The problem: the necessary service mindset is lacking – not so much in the branches, but in the rest of the organization. Even with a perfect target, this mindset cannot be acquired. It always requires a persistent transformation process.
No matter where the problem lies, anyone who does not consider subsequent integration when selecting a target should take Kostolany's warning to heart. The question is therefore not only whether the target has the right solution, but also, and more importantly, how can the solution be transferred from the target?
Merger of equals or reverse integration
The second detail from that conversation? The sentence: “So it's a merger of equals.” Wrong! The companies are anything but equal. One is running smoothly, the other is faltering. Anyone who labels this a “merger of equals” is setting completely false expectations.
Let's briefly recap the situation: a solution to the problems has been found. This solution comes in the form of an add-on acquisition. The decision is made to pursue the acquisition route. It would then be downright absurd to pretend that both organizations can now negotiate on equal terms how they want to merge.
Reality completely turns the tables. This is rather a case of reverse integration, because the target company clearly has the superior structures. To put it bluntly, the buyer is being integrated into the target company. The appreciation that is usually accorded to the target company in traditional constellations is now due to the buyer.
Hence the clear recommendation: do not acquire the target directly through the original portfolio company. Instead, conduct the transaction through the acquisition vehicle. This way, both companies are at least on an equal footing, and the target's organization does not inadvertently become subordinate.
Without sufficient buffer, restructuring becomes an ordeal
A sufficient buffer is the basic prerequisite for the success of fixing through acquisition. The starting point: the original company is not exactly shining in terms of profitability. All too often, a barely positive earnings situation tips into the red. Then liquidity becomes the bottleneck, and time becomes a scarce commodity.
At the same time, unforeseen events always arise. These consume at least additional time, and usually additional money as well. Take, for example, the introduction of an important IT system that entails further migrations. Although the production processes can be implemented on the existing machinery, logistics suddenly faces an unplanned challenge.
If such developments lead to a restructuring, the desired transformation must take a back seat. This can quickly take up a year or two. Unforeseen events are part and parcel of any M&A transaction, but in this case the consequences are much more serious.
No experiments during a crisis
There is no time for experiments during a crisis. This raises the question of clear exclusion criteria. The filters from the long list to the short list are already extremely narrow and allow hardly any targets to pass through. The requirements for a suitable target for restructuring through acquisition are extremely tough.
If the original company is undergoing restructuring or is even in acute danger of insolvency, there is one ironclad rule: stay away from complex fixing through acquisition.
The shorter route could be the better one
Sometimes the direct route gets you to your destination faster. Anyone seriously considering tackling restructuring within the existing company should ask themselves: Why not implement the necessary transformation there directly? The risk remains manageable, and the capital requirements are significantly lower.
In any case, in order to select the right takeover candidate, you have to thoroughly examine the problems and their causes and identify them with razor-sharp precision. Otherwise, there is a risk of choosing a target that looks excellent but misses the actual problem.
Once the problems and their causes have been clearly identified, the solution is almost always obvious. And the organization has to go through the transformation process anyway, even if it is being restructured through acquisition.
Courage or recklessness?
Fixing through acquisition — it sounds tempting, but it is anything but a silver bullet for struggling portfolio companies. Anyone who takes this path will quickly feel the enormous pressure that such a transaction entails. After all, it is not just a matter of two organizations, somehow, somewhere, sometime growing together. No, growing together is the essential prerequisite for the castling to work at all.
Anyone who thinks that fresh capital for the transaction and acquisition is all it takes is greatly underestimating the situation. The real challenge comes afterwards: the transformation of the company. And this is precisely where a question arises that must be answered honestly: Why not put all your energy directly into restructuring and transforming the original company?
So before rushing ahead and possibly throwing good money after bad, it is worth taking a crystal-clear look at the actual situation. First understand what is really going on – then decide.
by admincf | Oct 10, 2025 | Insight, Newsroom
From Kruger National Park to Jerusalem
Kruger National Park, South Africa. Closing offsite. The morning sun is already high in the sky, breakfast is almost digested. The two CEOs use the time before the workshop to take a walk through the savannah. Good idea. Fresh air, clear head, strategic thoughts. When suddenly a lion stands in front of them. Big cat. Hungry. Interested. Its facial expression leaves no doubt: the animal has not had breakfast yet.
One of the two CEOs remains surprisingly calm. He opens his backpack, takes out trainers and starts to put them on. Slowly, concentrating, as if he had all the time in the world. His colleague watches the scene with a mixture of disbelief and derision. “Seriously? With your athletic build, you think you can run faster than the lion?” The first CEO ties the last shoe, stands up and smiles. “Fortunately, I don't have to. It's enough if I'm faster than you.”
This could, of course, also be an answer to the CEO question. Two companies merge, two bosses come together, but at closing it is still unclear who will actually take the helm from day one. Postponed. Deferred. Left open.
Another option? Musical chairs. Anyone familiar with the game from children's birthday parties will understand the principle immediately. Two CEOs. One executive chair. As long as the music is playing, everyone remains relaxed. But at some point, the music stops. And whoever is sitting in the chair first gets the job.
All joking aside, though. When two companies that are more or less on an equal footing merge, playing the famous and often invoked merger of equals, how do you actually deal with the CEO question? Does it really have to be clarified before the closing? Or can you take your time to calmly develop a viable and sustainable solution that fits the strategy and achieves the goals of the acquisition?
The setting – the myth of a merger of equals
Textbooks have a clear idea of what a merger of equals (MoE) actually is. Two companies merge to form a new, independent entity, the NewCo. The details of the transaction are meticulously set out in advance in the business combination agreement (BCA). This agreement also sets out in black and white how the shares in the new company are distributed among the shareholders of the two old companies.
In a merger of equals in the strict sense of this doctrine, one company does not take over the other. Both parties are more or less equal in the process from the outset. Because NewCo is legally established as an independent entity, it needs a defined management structure from the day of inception. Anyone who has ever been involved in founding a limited liability company or stock corporation knows that this is not possible without explicitly specifying a management board or executive board. This can be designed as a temporary solution in which both CEOs of the old companies play a role, and the CEO question is deliberately left to be decided after closing.
In practice, however, the picture is often less idealistic. Many M&A transactions clearly follow the classic buyer-target relationship and are nevertheless generously labeled as mergers of equals. What this usually means is that the parties meet on eye height and refrain from imposing all of the buyer's structures on the target without discussion.
Those who take eye height seriously will logically also put the buyer's management structure and its staffing up for discussion. The target may have systems that are more interesting, more efficient, or more suitable. And this also applies to the relevant executives, including the target's CEO.
Before making hasty decisions, before really getting to know the people involved, it therefore makes sense to wait until after closing to clarify key personnel and structural issues. Especially since there are plenty of other issues to deal with between signing and closing. Anything that takes the pressure off at this stage creates room for maneuver.
Bye the way: When the acquisition is deliberately not intended to be on eye height. The decision to consistently roll out the buyer's model to the target is effectively a foregone conclusion for many buy-and-build projects. Even then, it is still worth consciously looking for best practices at the target. This is not only an important sign of appreciation for the organization and its employees. In practice, you almost always discover something interesting that should not be overlooked.
There is always a referee – the myth of a leadership vacuum
Then there is another special case. A financial investor buys several companies together. This does not necessarily have to happen as part of a buy-and-build strategy in a fragmented market; it could just as easily be only two or three companies – competitors, for example.
If the structure does not start with an anchor investment, but rather with a parent company that gradually acquires the two to three individual companies, then this acquisition vehicle has legal control from the outset. We recall the founding ceremony at the notary's office.
This means that there is no leadership vacuum in any scenario. At the very latest, the shareholder representatives or the shareholders of the company themselves not only have the opportunity to intervene, they also have an obligation to do so.
CEOs, supervisory boards, advisory boards, and owners shoulder the responsibility of ensuring that the M&A transaction does not turn into a chaotic children's birthday party, where the parents of the guest children think afterwards, “Thank goodness I don't have to clean up this mess.” This applies to mergers of equals as well as to acquisitions at eye height and any other M&A transaction. And it applies regardless of whether the CEO question has been clarified before closing or not.
The opportunity to finally clean up – the advantages
In many companies, executive board responsibilities are set in stone. Opportunities to fundamentally change these arrangements are rare. When they do arise, it would be downright negligent to let them pass by. This is a lesson learned by anyone who seriously engages with organizational change. Even when a new CEO takes office, the structures often remain unchanged.
However, the merger opens valuable space. Suddenly, the opportunity to restructure responsibilities is on the table. Changes in the market can be reflected in the organization. The desired, perhaps even necessary, transformation can finally be anchored at the highest organizational level. Where it actually belongs.
Separating structure and staffing is challenging. If the management team has already been determined in advance, it becomes nearly impossible. If the company takes its time here, it first marks out the playing field and then determines the lineup. As part of the integration process, the target company is often reorganized. This occasion can also be used to reorganize the buyer. It is an opportunity that is far too often left untapped.
By taking the time to experience the existing structures and management teams in the truest sense of the word before making decisions, the company sends a clear signal of appreciation for the target. This ensures that the target's best practices are not lost along the way. The much-cited encounter at eye height is visibly lived out and does not remain mere lip service.
Uncertainty and lack of transparency – the Downside
Unresolved decisions create uncertainty. This uncertainty affects employees within both organizations internally and customers, suppliers, partners, and financiers externally. If this situation persists for too long, there is a risk of leaving. The same dynamic can be seen time and again, especially among employees: the good ones leave first.
Parallel structures lead to inefficiencies. To prevent the two organizations from working against each other, additional coordination is necessary at various levels and in almost all functions. Although this increased coordination effort is part of every integration phase and thus every M&A transaction, it remains a noticeable hindrance.
A lack of final structures and responsibilities can also blur the focus. Corporate strategy and acquisition goals are interpreted differently and implemented less consistently as a result. In some constellations, an unresolved CEO issue opens the door to tactical maneuvers, political games, and power games. A spectacle that no one really needs.
In any case, the not taken decision will temporarily delay implementation and the achievement of acquisition targets. The risks are there. Whether and to what extent they will have an impact depends directly on how this phase of uncertainty is organized and managed.
Organizing the transition – How to succeed
The first step is to define the goal, the vision for the joint future of the two organizations. What goals should be achieved together? What will the success of the acquisition look like in one, two, or three years? What can be achieved together that was not possible alone? These are the familiar questions. The answers that breathe life into this vision carry both organizations through the uncertainty of the transition phase.
The vision is followed by the less glamorous but crucial process. If the original question cannot yet be answered, it should at least be clear how this question will be answered. How does the path lead from today's unresolved situation to the new target state, including the then clarified CEO question?
Ideally, this approach should be defined before closing. What steps will be taken, what coordination and co-determination are planned? When will which results be communicated? In addition to time limits, the process also needs content limits, guidelines, and a clear framework. What is set in stone? What scope for design is there? What can, what should, and what must be designed? Answering these questions means providing support to the people in both organizations.
This creates security in an open space. The more unfamiliar the terrain, the greater the demands on leadership. As long as the CEO question has not been conclusively clarified, a central leadership task lies with the shareholders or their representatives. This is where supervisory boards, advisory boards, or the shareholders themselves are called upon.
Leadership skills – Successfully reaching the goal 1
It has already become clear before that even if the CEO question remains unresolved, no one is steering through a leadership vacuum. At the latest, the owners are available as referees. As is so often the case in life, there is a mutual obligation here. In this uncertain phase, shareholders or their representatives must demonstrate clear leadership. This includes visibility, availability, and accessibility. The referee must be on the field when the whistle blows – anyone hiding in the locker room or wellness area has already lost before the game has even started.
Official structures such as a steering committee or a decision-making charter prove to be useful aids in standard situations. They bring calm and structure to the collaboration. That makes perfect sense. However, the real test lies in special cases, in exceptional situations, where no checklist can help.
When tempers flare over seemingly minor issues - such as whether to introduce centralized accounting or whether both locations should retain local accounting - discussions quickly escalate. Uncertainty spreads like wildfire throughout the organization. This is precisely the moment when arbitrators must intervene. Immediately, not just at the next official steering committee meeting in two weeks.
When a second playing field opens up in such moments, the focus shifts dramatically. Power games suddenly dominate alongside the substantive debate. Tactics are employed – in the truest sense of the word – until the arbitrator arrives. If the owners do not intervene in time and put a stop to these destructive patterns, constellations arise that will later be regretted deeply. Periods of great upheaval and pronounced uncertainty are not the time for power games, however popular they may be out in the wild.
A consistent separation of run-the-business and change-the-business provides reasonable guidance. Which issues belong to normal business (run) and which to the upcoming change? This clear distinction proves to be surprisingly effective. In many cases, business as usual can continue steadily during the transition period. This allows the arbitrators to focus their valuable attention on the relevant issues and clearly recognize how much tactics and power games are actually going on in the background.
Transparency creates trust – Successfully reaching the goal 2
The vision for the merger is in place. The reasoning behind the CEO question has been clarified. The clarification process has also been clarified, and milestones and expected responses for the organizational change have been clearly defined. But is everyone really in the picture? Do the employees of both organizations know what is planned? Or are they groping in the fog of uncertainty?
People can tolerate uncertainty, even over long periods of time. Provided they know approximately how long they have to wait and what steps lie ahead. Just like waiting for Santa Claus as a child: agonizingly long, but bearable because the Advent calendar counts down the days transparently and St. Nicholas makes the wait more bearable in the meantime.
It is precisely this transparency about the vision, the why, the process, and the milestones that those responsible must provide. It helps immensely to disclose the reasons for any delays. For example, a hearing and approval by the works council is pending or that an official shareholders' meeting must give its consent. These are not annoying excuses, but the reality of mature companies. And when communicated honestly, they create understanding instead of frustration.
That was the start. Now comes the real challenge: staying on track. With regular updates, the journey through uncertainty towards success continues. It is not only at milestones that there is sufficient reason to keep your word and provide information about the promised results. Small updates in between maintain trust. This does not always require staff meetings or pompous town halls. A short email from the respective CEO, ideally signed by both, creates a pleasant feeling of being informed, involved, and important.
But what if a milestone starts to falter? What if the expected result is not yet available because the works council is still wrestling with itself or the consultants? Or because a good solution has simply not yet been found and another week is needed? This happens and is rarely a disaster. On the contrary. As long as it is communicated directly and openly, it actually fosters trust. Because the truth has an amazing superpower. It makes you credible. And credibility is the hardest currency in any transformation.
Persistence and perseverance – successfully reaching the goal 3
This does not mean that plans and milestones should be thrown overboard at the first opportunity. Only truly compelling reasons, such as significant external influences that no one could have foreseen, justify adjusting the plan in absolutely exceptional cases. Two things are important for real change and true transformation: perseverance and persistence.
Difficulties, challenges, and headwinds are as inevitable as death and taxes in transformation projects. They will come. This is not unique to unresolved CEO issues or M&A transactions. It often seems as if a quick decision, a rapid resolution of the situation, is the right solution. In the short term, this may indeed work. In the medium and long term, however, vision and acquisition goals go to the dogs.
A proven rule of thumb for M&A transactions is that after closing, around 10,000 additional decisions have to be made in an uncertain environment. These are decisions that lie far outside the usual standards and processes. They consume additional time and energy and create a considerable amount of additional uncertainty. This is the inefficiency that M&A transactions always bring with them at the beginning.
All of this is part of the successful path toward achieving the goals of the acquisition. Uncertainty is part of the process. It takes persistence and perseverance to see the transformation through to the end without taking any tempting shortcuts along the way.
Two CEOs are okay – an open flank is not
Going into the closing and Day One of an M&A transaction with two CEOs is anything but usual. It is not impossible, and it is certainly not nonsensical. The real question is rather: Why?
What is the vision and what are the goals behind it? Why wait to make this decision? If there is crystal-clear conviction on this point, then it is the right way to go. With the necessary leadership strength, including on the part of the shareholders, this uncertain phase can be mastered with confidence.
