Acquisition Rationale
Deal rationales for acquisitions are usually to acquire:
- Customers – access to new customers and markets
- Products – access to new products and services.
- Capability/Diversification – access to new people, technology, IP, or distribution channels;
- Defensive – to prevent a competitor from acquiring the business or key assets.
- Synergies – arising from strengthened market position, cross-selling opportunities, and enhanced scale.
Acquisitions can bring their benefits quickly contrasting with organic growth which is “unproven” and needs to be earned.
Financial acquisitions – Objectives are cost reduction, tight financial control, disposal of poor performing businesses.
Success factors are: Imposition of management, financial reporting requirements, and speed of change < 100 days.
Geographic acquisitions – Objective to expand the core business into new geographies.
Success factors are: Clear understanding of deal rationale, similarity of the target, and ability to “reward appropriate behaviour”.
Symbiotic acquisitions – Objective to integrate skills and products within a portfolio or distribution channel.
Success factors are: Careful planning, new organisational structure, culture management, effective combinations.
Absorption acquisitions – Objective to merge two similar businesses but has greatest potential for problems as ALL aspects of target and acquirer are generally “up for” review.
Success factors are: Financial objectives, understanding similarities, appointment of integration team, integration of plan, choice of management, speed, swift implementation of new organisational and reporting structure, communication. Stay focussed on the customer – keep everyone externally focussed
Acquisition risk factors: Leadership that doesn’t want to grasp the big issues. Drifting – not grasping the thorny issues quickly and making the big decisions. Culture clashes are one of the biggest risks – which start with a failure to map the cultures of the two organisations and agree how the new combined business should operate.
Excerpt taken from Conquering M&A by James Dow available to purchase from Amazon here.
