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.