Mergers and Cost Accounting in Relationships

Mergers and cost accounting

This essay uses a business analogy to argue that men should consider control over resources and continued investment in themselves when entering relationships. It assumes different value trajectories for men and women and interprets partnership through sexual market value (SMV). Those assumptions drive the argument; they are not conclusions established by merger accounting.

A merger takes place when two businesses combine their assets and operations into one entity. The motivation can be anything from lessening competitive pressures between the two, vertical integration of the supply chain, horizontal integration of complementary enterprises, diversification and many more.

An acquisition takes place where one business buys the assets and operations of a second business, with varying goals such as those outlined above.

In the simplified comparison used here, a merger leaves both sets of owners with a stake in the combined business. They may have equal shares or a majority and minority stake, and both may want a say in operations. An acquisition puts control with the acquiring party. Actual transactions can use more varied ownership and payment arrangements.

Differences over control can expose a poor strategic fit in a merger or acquisition. The two companies may have had very different cultures, structures, approaches, and the only thing they had in common was the appearance of profits being possible through M&A.

An acquisition may give the new owner authority to change the acquired firm’s culture, approach, and strategy. That authority does not make integration easy. In the case of a merger, it is more complicated, as there are more owners involved, and in the case of an equal partnership between the owners, there is a tendency for acrimony to enter the picture concerning which path to follow and what changes to make.

In terms of a relationship, marriage is sold to most men as a merger, with two partners holding equal share and equal say. This means that decisions regarding the strategy forward, the cost of that strategy and its operations are to be agreed upon between two equal partners. Implicitly this means that each partner must have their say, and decisions should be democratically decided upon through agreement and negotiations. After all, when two business entities are merged into a 50-50 partnership, each partner carries their part of the cost, and each partner is entitled to their share of the profits.

However, with a marriage or any type of live-in long-term relationship, it tends to take the form of an acquisition with the male being acquired by the female. An apt comparison would be that of an aging firm with declining profits and value acquiring a young and rapidly growing company, which then creates the majority of the old firm's revenue and profits, from an SMV perspective. The female value will rapidly decline and the male Sexual market value will appreciate.

Secondly, as it often happens with this type of situation, the old company is attempting to structure the newer company according to the old model, which does not work for the new company. In fact, this often creates a situation in which the value and earnings of the younger company declines, as it is not able to pursue the correct strategy for itself.

If you as a man, find yourself reading this while in a marriage where you are sitting in a house, where you at best get a man-cave in the basement or garage, while paying the whole mortgage. Where every moment of free time you have for the next 6 months, is already planned for you by your wife, you do not dress like yourself anymore, you stopped lifting weights because your wife wanted to take Zoomba classes together and the last time you saw your friends was your wedding. What happened was not a merger it was a hostile takeover. The analogy asks you to determine whether the proposed relationship resembles a merger, an acquisition, or a joint venture in its allocation of money, time, and control.

A relationship in many ways can be formulated as either a merger, an acquisition or a joint venture. A marriage is a case of a merger where both parties merge their assets and liabilities in order to be treated as one business entity henceforth. In the business world, companies can go on sprees of mergers and acquisitions; however, in the western sexual market place, this has been outlawed, and one may only merge once, and then must undo the merger to engage in a second merger.

Most relationships take the form of joint ventures, where each party may pursue other joint ventures, and such a venture can end rapidly. The main difference between a joint venture and a merger is that in the former, both operating entities remain separate entities except for their investment in the joint venture. Therefore, the male and the female are both their own company operating independently of each other in terms of equity and debt, however they have both invested in a joint venture to which they are both 50% owners.

In the form of an acquisition and merger, some unification of assets is required. In every such situation, accounting principles come forth, especially those related to assets, liabilities in the case of the former, costs, and profits in the case of the latter. For you as the man, now aware that the woman you are about to merge with, or be acquired by is falling in value, and you are about to increase, this should be approached with an eye on the numbers.

The essay’s proposed due diligence focuses on assessing a prospective partner’s future value within this model. After all, if you were buying a car you would not like it to break down or otherwise have its value drastically reduced five minutes after you drive off the lot. This is a process referred to as "due diligence" within the M&A world, where the financial, legal, and other aspects of the company are explored to find pitfalls.

For instance, if you happen to find out that she has been involved in multiple talks of merger or acquisition prior to the talk you are having with her, why did they not go through? Has she been merged multiple times before, yet they never seem to stick? Does her parent company have many issues with the law, or other companies?

Does she appear to be padding her value through accounting tricks? Did she suddenly claim to have a much wider and frequent array of service offerings, or promising research and development? Is her day-to-day operations being said to operate at a much higher level than normal? Are the company’s operations sustainable at the present rate? Alternatively, is a show being put on to secure the deal? Is the story of the company weirdly perfect, or on the other hand, marred by a history of legal action, conflicts with other companies, and developments that never seem to materialize?

These and many others are aspects that should be covered during the due diligence period and prior to any decisions being made to arrive at a deal. Many a deal has stranded because of suspicions that arose during the due diligence phase of the deal and such suspicions warrant examination before agreement.

Relationship Cost Accounting

Every relationship has its costs, which can be divided into multiple categories. If a person is looking for a relationship, they have to accept the search costs, the information gathering costs, the cost of dating, and various others. If a person is in a relationship, they are forgoing other opportunities in order to pursue that relationship, which translates to opportunity costs. Over time, that which has been invested in the relationship becomes a sunk cost once a person wishes to leave the relationship, and this may keep them from leaving even when it would be expedient to do so.

The essay divides a single man’s use of resources in the sexual marketplace into three categories.

A) Expenses

B) Investments

C) Savings

Expenses

An expense is when resources are spent in such a manner that they offer little, if any return. Rent, food or car payments are all expenses to maintain a lifestyle preference at the present level or increase it. While a nice lifestyle is often argued as something that increases sexual market value, it is transient in nature, and costs you would have to bear even if not actively seeking to increase SMV.

Savings

Savings constitute resources that are saved for later use, the most concrete example are financial resources as these can be conveniently stored over time, and provided they are properly stored may appreciate in value. For instance, saving 50% of take home salary every month is a slow investment in your freedom from having to work, thus freeing up time to pursue other interests.

Investments

Within this model, investment in oneself builds sexual market value. Having a nice discretionary expenditure account is nice, but continuous investment in self is how truly high SMV can be constructed. This requires being selfish, and rational in how time is spent to get a maximum return. Three hours in front of a TV set can also be three hours in the gym or learning a new language.

A company builds itself through strategic investments in a variety of assets. A vertical integration is when a company buys another participant in the value chain, for instance a chain of grocery stores buying a wholesaler, or a wholesaler buying production companies. A horizontal integration is when a company buys several items that are related to one-another, for instance the merger between Kraft Foods and Heinz, both producing goods for the consumer food market.

To increase sexual market value, a man most frequently engages in horizontal investments that maximizes his value, for instance investing in his appearance through working out, learning about fashion and style and getting better haircuts. Expanding his social circle through befriending new people conducive to his goals, improving social skills and learning game is a similar example. The reasoning being that vertical integration is not a possibility, and even if it were, it would offer less tangible results than horizontal integration.

When entering a relationship

When transitioning into a relationship, a man must be mindful of how this alters his expense structure as females have an expectation of investment into the relationship, rather than the parties in the relationship. As the sum of time is a constant, it can never increase, only be moved, and thus it follows that unless expenses or savings are reduced, a transition into a relationship model of investment means less invested in the male alone.

This presents a double-edged sword of both increasing sunk costs of the relationship, adding opportunity costs of being in the relationship, in addition to a reduction in sexual market value. The reasoning behind the reduction is the division of investment between new investment and replacement investment.

A replacement investment is one that must be undertaken to maintain the value of an asset. A house for instance, requires maintenance in order to retain its value over time. Replacing broken windows, new coats of paint, plumbing and electrical work, all represent replacement investments.

A new investment on the other hand adds value to an asset by somehow improving it. For instance, adding a pool, replacing the kitchen or putting in an extra bathroom adds value to the asset that the owner will realize when they sell the asset.

Likewise, a man in a relationship will often divert much of his investment resources towards the benefit of the relationship, such as "quality time", time spent with her family and friends, engaging in relationship activities that take away from his investment time. Over time, this tends to grow and take away his ability to increase and maintain his sexual market value. Many men elect to make this choice once they enter a relationship, with the logic that now that they have a relationship they can reduce their performance burden.

However, the male performance burden, much like energy can never disappear it can only change form. Where he used to invest in himself, his investments are slowly moved to investments in them, in her and in their children, thus his sexual market value enters terminal decline. However, just like much of the sexual market place, this is counter-intuitive, the more he invests in her and the relationship and the less he invests in himself the less happy she becomes.

If one looks at reasons for divorce the three reasons mentioned by the authors of the cited article were; "The most frequently cited factors were unmet emotional needs/growing apart, lifestyle differences or boredom with the marriage, and high conflict, demeaning relationships." (18) The essay interprets these reasons through praxeology as disagreements about the investment of resources. Unmet emotional needs equates to one partner wanting the other partner to invest more resources into meeting their emotional needs. Growing apart represents a disagreement on how to spend the joint resources within the relationship for future benefit. Namely, both parties elect to invest differently. Lifestyle differences likely represent a decision to spend resources in a different manner from the partner. Boredom with the marriage, can be argued as a case of both people viewing investment as not existent within the relationship.

High conflict and demeaning relationships are their own category, and often exist where one or both parties are extremely focused on their own needs and investment areas, and does not consider the other partner. However, the argument for the male investing in himself is the female tendency to change partners upwards, otherwise known as branch swinging, which takes place where the woman finds a new prospective partner that would offer a higher degree of satisfaction to her hypergamy. This can only be mitigated if the male ensures that he remains well above her sexual market value, and ideally so high that she would be hard-pressed to find a better deal.

However, one should be mindful that female solipsism could often drive a woman to discard a husband whom she will never be able to replace, due to her own solipsism and that of other women. The core principle behind this is that a man will look at a woman and think "Nobody's perfect" whereas the woman will look at a man and think, "I can do better". The reality is often that if both are over 33 years old, his SMV has now eclipsed hers, depending on how he managed his investments, thus he has a better chance of replacing her than vice versa.

Thus, the cost accounting aspect of a merger or acquisition is frequently less considered than the legal framework. Most people know that divorce exists and can be very expensive, however the essay asks men to consider how shared commitments may change the time and resources available for their own goals.

The risk of the merger or acquisition failing should always be a part of the due diligence process prior to entering the relationship, including a frank discussion on prospective investments.