Of Synergies and Spreadsheets

When buying anything, whether it’s a company choosing a vendor, a suburban soccer mom considering solar panels on a home, investing in stocks, or as a CEO considering an acquisition, the big and easy decisions are what you should focus on, not the slick presentations or the fancy math (or total lack of numbers). Is there a quick back-of-the-envelope ROI? What are the explicit and implicit costs? Since ~90% of health happens outside of intervention settings, you should focus on net value, or what impact you really get after paying all costs. You also need to pay attention to supposed synergies. One consulting company touted below market healthcare trend then quickly stopped reporting trend and ignored the target they had set. When asked what the updated numbers were, the company said they were focused on implementations. The spreadsheets turned to ghosts.

As Buffett said in the 2017 shareholders’ letter: “Once a CEO hungers for a deal, he or she will never lack for forecasts that justify the purchase. Subordinates will be cheering, envisioning enlarged domains and the compensation levels that typically increase with corporate size. Investment bankers, smelling huge fees, will be applauding as well. (Don’t ask the barber whether you need a haircut.) If the historical performance of the target falls short of validating its acquisition, large “synergies” will be forecast. Spreadsheets never disappoint.”

Photo by Isaac Smith on Unsplash

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