Tuesday, September 23, 2008

Bank of America - Where is the Due Diligence?

Bank of America and their CEO Ken Lewis have been on a massive expansion of their business portfolio in the past few months, following a series of smaller acquisitions over the past few years.

The acquisition of Merrill Lynch for $44 billion is the biggest piece in a series of deals worth almost $100 billion. That is an enormous number. And much of the last two deals, Merrill Lynch and Countrywide were done very quickly with very large partners.

Many people will write and speculate on the ultimate success of these deals. in his blog, The View from Harvard Business, Sean Silverthorne cites a post by Bill Taylor of Harvard Business Publishing in which he ponders whether Lewis is brave or crazy.

According to Silverthorne and Taylor, what Lewis is trying to accomplish with his company
runs counter to almost every major trend in business I’ve seen over the last five years — and are at odds with what customers are looking for in the companies with which they do business.

Silverthorne points out Taylor's observation that the enormous size and scale created by these deals will likely cause problems for Bank of America over the long haul.

I think there are more issues not discussed by Taylor. Most deals of this size require lengthy due diligence. Lewis and BOA made these acquisitions at warp speed. They acquired enormous companies with strong cultures in the same amount of time as I have taken to purchase a used car.

If I were in the Human Resources department at Bank of America, I would very nervous over the following questions:

  • How do they know what they bought in terms of talent?
  • How much due diligence was done on benefit plans and retirement plans?
  • How will these company cultures be meshed together in a successful way?
  • What pending employment litigation is out there?
  • What are the compensation structures?
  • What is the overlap of functions?
  • How will we integrate systems?
There is little doubt that in the fast and furious Wild West days we are seeing in the financial world, this is a bold move, with big payback opportunities, but also fraught with big risk. Lewis has made a pair of bold moves in a very short period of time.

Many mergers of this scope between two parties fail, even after careful planning and lengthy due diligence due to culture clash or organizational conflict developing out of an inability to integrate different value systems. It will be interesting to watch this new company unfold over the next few years.


  1. Great post. Thanks for the analysis.

  2. Thanks for the note. The entire financial system and political situation is changing so fast, it is really hard to fathom. BOA could make a ton from this, or wind up in deep trouble.

  3. Your 7 nervous questions are very thoughtful.

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