I’m in the middle of writing a book about the epic fails of capitalism (a project that’s got much bigger in the last 12 months), and in the part of the book that deals with mergers – a rich source of epic failure – there’s one that stands head and shoulders above the rest: AOL and Time Warner.
When we were doing the research into the press coverage of the merger, one thing stands out: the number of reporters who faithfully wrote down that the two businesses would capitalise on their synergies, without really asking what those synergies might actually, you know, be.
Synergy is a weasel word for making people redundant and selling the buildings that they worked in, and also a vague placeholder for we want some of their stuff to make our stuff work better. In the first case, using it avoids awkward words like redundancy that make people glum, and in the second, it avoids actually telling us what they are going to do.
It’s now pretty clear that AOL-Time Warner needed a lot of the first type of synergy, because there was bugger all of the second type.
I went back to the Factiva database to see whether there are more businesses claiming synergy these days, and there are, big time. I searched in the European and North American business press, and compared the number of articles mentioning mergers with the number mentioning mergers and synergies too. M&A volumes may be at their lowest for five years but the synergy bubble never bursts. Mentions of synergy are 402 per cent up in the last 30 years, and the rise has been wonderfully consistent:
In just over 30 years it has become five times as likely that a business will describe a merger as providing synergies (or, at least, that this lazy rebranding will be reported in the press).
It might just be that synergy has just become a vogue word. But I think it’s also due to positive word bias, which is far more of a problem.
To explain: every M&A deal has some rationale beyond a pooling of capital and saving on letterheads. The benefits can be difficult to explain, easy to question, or impossible to measure accurately. Three reasons not to go into too much detail if you want to push it through quickly – especially if you’re directly or indirectly incentivised to make the merger work. If you want to create momentum in the media or among shareholders and employees (and in your own mind) it helps to give the benefits a positive-sounding, catchy, go-for-it name.
That name is synergy: code for the things we don’t really want to talk about right now. It won’t make your merger work any better, but it might make more people believe that it will. And if your reward comes more from the deal than the messy aftermath, it pays to talk about synergy.