M&A stands for "magic act." (mergers and acquisitions)

Do you believe in magic? Do you believe the whole is greater than the sum of its parts? Do you believe two plus two equals five? If you answered "yes" to any of these questions, then you probably believe in acquisitions as a valuable strategy to grow a company.

You're not alone. Pick up any newspaper and you'll see that one company is buying another - and these are just the big deals that are being reported. It's amazing to me there's so much acquisitions activity, given all the negative data. Sharon Blanding, author of Acquisitions, writes that of the 56 major acquisitions she studied, only 13 were successful. A statistic like that gives credence to the opinion of one of my former bosses who used to say, "Two plus two does not equal five and seldom equals four." Given his success in creating and building a profitable company that has stood the test of time, I really can't dismiss his words.

GIVING DUE DILIGENCE ITS DUE

Despite this evidence, my current employer's management team believes in the merit of acquisitions. But don't confuse our beliefs with our practices, because we haven't actually made any acquisitions. It's kind of like eating vegetables. I believe in that concept, too. Yet, given the choice between a cheeseburger and a bowl of asparagus, I'm going with the burger.

Recently, we've devoted a lot of time, energy and resources looking for the "right" company to buy. We've gotten close, but something always happens to botch the deal. On more than one occasion, we've had to walk away when an owner got too greedy, confusing his love for his company with the worth of his company. Sometimes, owners are so bullish on their firm's future that visiting them becomes a trip to Fantasyland, where all business owners are paid twice what their companies are worth. Other times, the owners just change their minds. "When I saw how interested you were in my company, it got me to thinking that this is a darned good place to work. I don't want to sell."

On the plus side, just saying "no" has kept us from making any bad acquisitions, and we've learned a great deal about the due diligence process. We can do due diligence with the best of them. Given enough time, we can do enough due diligence to talk ourselves out of anything. "I don't think Bell's invention will ever take off. If people want to talk, it's easy enough to get on your horse and go see them."

Of course, some executives pull off acquisitions and make the whole trick look simple. These corporate wizards keep the rest of us pursuing the perfect acquisition.

For example, Dr. Ed Bersoff is the CEO of BTG, a professional services firm with headquarters in McLean, Va. He knows a lot about acquisitions, beyond the due diligence process. BTG's revenues have grown from $29 million to more than $214 million over the last five years. One primary reason is acquisitions. When I spoke to Dr. Bersoff, he had just learned that BTG won a $550-million contract with the U.S. Army, primarily because of the expertise brought to the firm by an acquisition made just last year. Consequently, Dr. Bersoff was in a two-plus-two-equals-six kind of mood.

BTG has made three acquisitions over the past three years, paying approximately $19 million in total. But if the company had channeled some of that money into business development instead, wouldn't it have achieved the same results a lot more cheaply?

Dr. Bersoff could see the logic of my piercing insight, but he didn't agree. He says that without the acquisitions it would have taken BTG a lot longer to grow to its present size. He wants to expand the company into an industry giant during his lifetime.

This is a key point. Acquisitions can propel a company into a different size category, allowing it to leapfrog the interim stages of growing on its own. Once a company reaches a certain size, then customers perceive the bigger company as more capable of delivering on its promises, whether it is or not. This perception enables the company to bid on and win work that it might not have been able to win prior to the acquisition.

In light of the success that BTG and other companies have had with acquisitions, it would be pretty foolhardy of me to make a blanket statement that says acquisitions are always a bad idea. And it would be especially stupid for me to say that when my company is trying so hard to make one happen and while I spend so much of my time due diligencing. So I'll conclude with just four reminders about acquisitions.

FROM THE DIARY

First, leave the old CEO out of the new company, particularly in a turnaround. On more than one occasion, I've heard of peripheral issues like the title of the CEO of the company being acquired killing a deal. "I want to be called King Bob, Master of the Universe." "K.B., we were thinking more along the lines of division director." Having worked for several CEOs - some with egos even bigger than mine - this doesn't surprise me a bit. I don't think I could go from being vice president of finance and administration to controller, even if the money's right. The last time I made a move, I gave up all administrative responsibilities to focus on finance. While my monetary compensation went up, I took a big cut in psychic pay, and I'd never do it again.

Second, if you err, err on the side of moving too slowly. Better to miss a good deal for lack of speed than to get a real stinker complete with lawsuits and a date with Mike Wallace on 60 Minutes. I once sold a small subsidiary that wasn't doing well to a man who did almost no due diligence. It must have felt right in his gut. Certainly his brain was never consulted, because he made one very bad deal.

Third, remember that what happens after the deal is more important than what happens before the deal. Just because you did great due diligence and paid the right price doesn't mean the deal is going to work. All that "integration of the two companies" stuff has to happen. You have to sort out benefits, policies and procedures, business practices, parking spots and other important items.

Fourth, you may have noticed that not once have I used the "C" word. I hate it when people use the "corporate culture" cliche when discussing acquisitions. "The most important consideration for making an acquisition work is successfully blending the two cultures. Do our people like their people? Do they like us? Will they go bowling together?"

Both of my parents, my wife and several good friends have worked for firms that were acquired. After listening to their experiences, I can assure you that employees of acquired companies see right through the acquiring CEO's line, "The main reason I made this deal is it just felt right here." And then he points to his heart or his gut. It reminds me of when I started a new job and the CEO/owner told me he wanted to have a close relationship, to talk with me frequently. When I asked the best time to get together each day, he said, "Call my secretary. She'll set up something."

Culture. Is there a more overused term in the business press? Maybe outsourcing, but that's it.

P.S. If anybody out there in the $5 million to $20 million range is looking to be acquired, give me a call at [phone].

Mr. Falconi is CFO of a defense contractor in northern Virginia. You can reach him at [phone] or by e-mail at [e-mail].