Jakub Burda (Roklen): In acquisitions, one plus one is often less than two

In this episode of the CEO na ostří nože podcast, we talk to Jakub Burda, managing director of Roklen Corporate Finance. He has worked in mergers and acquisitions since 2006, focusing mainly on mid-sized Czech companies with revenues from a hundred million to several billion crowns. In his view, when companies combine, one plus one often doesn’t even make two, let alone three. In the first years after an acquisition, the result is often closer to one and a half.

Burda knows company culture from his own experience. A civil engineer by training, he learned his first lessons in dealing with people on construction sites. He later worked at Patria, a firm with a strong entrepreneurial culture and a drive to get things done. After it became part of a large banking group, however, it began to clash with its bigger partner’s culture. Patria wanted to deliver premium service to selected clients; the big bank wanted more of a mass-market, standardised product. Fourteen managers, Burda among them, proposed a management buyout. No answer came, and none of them works at Patria today. In 2014, some of them co-founded the Roklen group with the aim of doing investment banking in an entrepreneurial way.

According to Burda, both buyers and sellers still underestimate company culture. At a training session in New York, a seasoned M&A expert named integrating cultures the number-two issue, right after valuation. In the Czech Republic, though, culture is usually addressed only after the deal. “Companies work in a very tribal way,” Burda says. Employees are loyal and proud of what they’ve built. If a buyer breaks up the tribe, it loses value, because the cash flow it paid for is generated by those very people. That’s why continuity is key: who will carry the culture when the founder leaves, and whether the company has independent management that can take it forward. A strategic investor who knows the industry has an easier time of this than a financial investor buying the company to sell it at a higher price five years later.

In due diligence, Burda says, buyers check accounting, tax, legal and commercial matters. Their operations people then focus mainly on whether the IT systems can be connected. Questions about values, loyalty and company philosophy come up at most in interviews with management, and rarely at that. Yet he believes they should be raised as early as the first offer, where the buyer describes what it intends to do with the company. And he has a simple test for both sides: if you wake a leader at midnight, they must be able to say in one sentence why they’re buying or selling the company, and explain it to everyone around them.

He also knows the typical mistakes after an acquisition. If nobody clearly tells people they should no longer go to the former owner, a dual channel emerges: they report officially to new management and complain unofficially to their old boss. The second mistake is when one person negotiates the deal and then hands the company over to someone without the same motivation. Burda recalls a conversation with his father, who ran a large construction company that grew through acquisitions. His father explained that after buying a road-building firm, you have to talk to its people, go to their company balls and really get to know them. Otherwise, the promised synergies won’t materialise.

What else will you learn in the podcast?

• Why one plus one doesn’t equal two in acquisitions

• How an entrepreneurial culture clashed with the culture of a large bank

• Why companies are tribes and what happens when you break them up

• How strategic and financial investors differ in their approach to culture

• At which stage of the acquisition process culture should be addressed

• What mistakes are most often made after an acquisition closes

According to Jakub Burda, the main reason acquisitions fail to deliver promised results is a lack of communication: between the companies, between management and employees, and between whoever bought the company and whoever then runs it. Price is only part of the deal. The real value of a combination shows only in how well people can work together.