As we all adjust to the new normal it is clearly going to be tough to deliver growth. Acquisitions can be a powerful tool to execute your strategy but they are a graveyard of failures, missed opportunities and underdelivered promises. Why?
I’ve studied the research, I’ve completed a dozen deals, I’ve failed to close many deals and on that basis I offer my top reasons why you will fail. Hope it helps.
Top 10 Reasons
- Acquirer’s buy what’s up for sale instead of what really fits their strategy. An acquisition profile is not created and a formal search process is not conducted.
- The acquired company is not in the business the acquirer thought it was. Transport business buys an Ambulance business. The latter is in the hospital sector not the transport sector. The deal was a failure.
- The acquirer fails to learn from successive deals. No post mortems are conducted and the same mistakes are repeated every time.
- There is no process map in place to execute acquisitions with the result that disparate teams, from finance to technical assessment experts are not on the same page and the project implodes.
- Post acquisition planning is relegated to the last minute either just prior to completion or just after completion. Result – integration is never truly achieved, key people leave and the original ROI is never achieved.
- Commercial due diligence is done badly resulting in a flawed strategic case for the deal. The acquirer gets emotionally attached to closing the deal and ends up acquiring a business that was always a bad fit.
- The acquirer underestimates the talent being acquired, fails to integrate the key staff who made the target a success and the acquired declines leading to a slow death. Most acquirers lose the selling company’s management team in the first year. Google retains around 67% of ex-owners.
- Preparation for the negotiation of price and deal structure is weak leading to overpriced and badly structured deals.
- Acquirers get confused between deferred consideration and earn-outs. The former are time related payments with no performance requirements, the latter are only paid by achievement of performances above historical results.
- Integration of targets are not driven by a senior director responsible for the success of the deal.
Of course The Portfolio Partnership’s Acquisition Approvals Process Map addresses these failures and many more but you already knew that! Details here.
Hi Ian,
I think when you boil it all down, the real challenge faced when acquiring a new company is figuring out where all the pieces fit. This really comes down to integration, but ultimately I think even that is too general a term for it. Some acquired companies would be better off run almost as a separate business. Some have components which might naturally fit into your company. Some might be acquired specifically to get a hold of talent, technology or expertise you don’t have and can’t afford to develop. There are probably numerous other scenarios I’m ignoring here, but that’s kind of the point. It’s probably a good idea to have at least an idea where these pieces will fit before you decide on an acquisition rather than discovering, as even huge businesses do sometimes, that they have no way to successfully integrate what they’ve acquired.
Heather,
Great points. Post acquisition integration thinking done early reveals the fit or lack of it. It reveals how you will operationally run the business, It reveals the best way to structure the deal.
It even determines how you should approach due diligence. In other words a rigorous approach to integration is essential. The best examples from the big boys are Google, great approach Vs HP perhaps not so rigorous.