Corporations use acquisitions to accelerate their growth and/or gain new resources and assets: Knocking off an upcoming threatening competitor, increasing market share, reducing financial risk and diversifying their product or service offering. Going "solo" through organic growth is best, but acquisitions help accelerate growth.
The average success rate of corporate acquisitions though is only 25% to 30%. Many acquisitions fail to deliver their strategic or financial goals either because the strategy was faulty to begin with or poor execution. Other reasons include timing, overpaying or unrealistic expectations... but let us stay positive. Here are my seven suggestions to make your next acquisition a great one.
1) Purpose: Focusing on the number one reason for the acquisition. A clearly defined benefit is key. You may uncover secondary benefits later on, that's Ok but focus is good. Examples: We don't have a presence in Western Canada. We need national coverage. Period. We have A, B and C. We need D going forward. Period.
2) Timing: Successful investors buy when everybody is selling and sell when everybody is buying. Easier said than done! Assets valuation can fluctuate with economic cycles so timing is key.
3) Plan for post-acquisition: Will the acquisition be a "stand alone" or a "tuck-in" acquisition. Richard Cushing once said: " Always plan ahead. It wasn't raining when Noah built the ark." A plan is a road map or GPS. Better have one.
4) Culture compatibility: The M&A advisors, consultants, lawyers and accountants will provide a lot of business counsel and advice but are the two cultures compatible? Companies cultures will always be different but how apart are they from each other? Peter Drucker said: "Culture eats strategy for breakfast". Culture is real. You cannot count it, but it exists.
5) Changes: Acquiring new assets, new resources and new customers is exciting but "hold your horses"... avoid making too many changes quickly and simultaneously. Make changes preferably one at a time. Introducing too many changes concurrently may confuse customers and employees. Stability first ... changes later.
6) Public or private: Acquisitions of public companies involve their boards but with SME’s and private companies the deals are often made by the founders, presidents, and most often family members. The dynamics are different. Plan ahead and build first a relationship with the target company. Private companies are not always "money driven" as public companies, so “courtship” through informal breakfasts, lunches, association events etc. is often a good build-up for acquiring privately owned companies.
7) Team work: People make plans work or fail. Just like a soccer team. You need not only good players in every position, but players that can play together so the team wins. Weaving together a team with a common vision, mission and commitment. Post acquisition, the team should include people from both organizations.
These seven tested suggestions may not guarantee success but can mitigate the risk and make a positive difference between success and failure.
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