The percentage of acquisitions that fail varies depending on the source, but some estimates indicate that as many as 70-90% of acquisitions fail to achieve their intended goals. Factors that contribute to the failure of acquisitions include cultural differences between the acquiring and acquired companies, lack of communication and integration planning, and failure to achieve synergies or cost savings. Additionally, overpaying for an acquisition or a lack of due diligence can also contribute to the failure of an acquisition.
There are several steps that can be taken to improve the success rates of acquisitions:
- Continual assessment: Before making an acquisition, it is important to conduct thorough research and a continual assessment of the target company to ensure the acquisition is aligned to your strategic objectives. As facts are being gathered, ask yourself: is this really a target that could enable my strategy?
- Communicate effectively: Good communication is critical to the success of an acquisition. It is important to keep all stakeholders informed and involved throughout the process.
- Address cultural differences: Cultural differences between the acquiring and acquired companies can be a major obstacle to success. It is important to be aware of these differences and take steps to address them. Sometimes it is better to walk away.
- Focus on synergies and cost savings: One of the main benefits in acquiring another company is to achieve synergies and cost savings. It is important to have a clear plan in place for how these will be achieved. Who, when and how must be addressed.
- Be realistic about price expectations: It is important to have realistic expectations on price and avoid overpaying for the acquisition. Sellers aspire to price. But acquirers need to perceive value to them. Acquirers need to justify the price paid.
- Keep an open mind and be willing to adapt: The process of an acquisition is not fixed and static, so keeping an open mind, being flexible, and being willing to adapt to changing circumstances are important to increase the chance of success.
- Develop a clear integration plan: Having a clear plan for integrating the acquired company is essential to ensure a smooth transition, to onboard the target’s team and minimize disruptions.
- Continuously monitor the progress of the integration process: This includes tracking key performance indicators, identifying and addressing problems, and adjusting as needed.
By taking these steps, companies can increase their chances of achieving the intended goals of an acquisition and improve the overall success rate.
Additionally, companies can increase the odds of a successful acquisition by engaging outside acquisition support services with operational experience. Triggers for this help could include:
- Lack of expertise: If the company does not have the internal expertise or experience to conduct the acquisition, outside support services can provide the necessary knowledge and guidance. Importantly this must include the mentoring and development of staff.
- Complexity of the acquisition: If the acquisition is cross-border and involves multiple parties or regulatory requirements, outside support services can help to navigate the process.
- Integration planning: An experienced third party can help the company to develop a detailed integration plan and to ensure that the acquired company is integrated smoothly into the acquiring company. This is experienced operator work.
- Due Diligence: It’s not just the financial aspect that’s important. An outside party can provide an independent commercial and operational evaluation of the company, processes, talent, and other factors to be acquired. This can help to identify potential risks and opportunities and be fed into the integration plan
- Legal and regulatory compliance: Acquisitions often involve legal and regulatory compliance issues that can be complex and time-consuming, outside support services can help to identify the commercial impact of these rules.
- Financing: Your external partner can assist with raising capital, whether through debt or equity, and help the company negotiate with investors and lenders.
- Post-Merger integration: The Post-merger integration office (PMI) is a technique deployed by successful acquirers to monitor the progress of the integration process. The Portfolio Partnership has run these successfully by tracking key performance indicators, identifying and addressing problems, and adjusting as needed.
- Cultural integration: In a cross-border acquisition, an experienced third party can help the company navigate the cultural differences between the companies and help ensure that the acquired company is integrated smoothly and set up for long term success.
By seeking outside acquisition support services when conducting an acquisition, working closely with your existing team, companies can increase their chances of success and minimize the risk of failure.
At The Portfolio Partnership, we have developed a unique acquisition process designed to address many common mistakes we see being repeated time after time. Our 6-phase Acquisitions Approval Model with 25 specific steps, helps to eliminate common mistakes and maximize the success of your acquisition.
If you are contemplating an acquisition, want help with an existing project, or want to begin developing a methodology to enhance success, please feel free to reach out. We are always ready for a chat.
Kevin@TPPBoston.com
