Mergers & Acquisitions is often a misunderstood interpretation of an act and not a strategic consideration. But in times of turbulent economic – like now – we often case a lot of interesting prospects and we are encouraged to take on the task of the M/A act. If your CEO, members of board or business angel approach you with the question to start an acquisition, consider why you should do it and how. Merging an acquisition is hard work – people work and feelings work. Do not start looking at consolidating the phone systems. Look at the people.
Here is some reasons for acquisitions.
A – Market consolidation.
Consolidating a market has one reason – to stop competition and grow by eliminating your competitors. For public listed companies this is a great way to balance the shareholder capital vs. income. What you are buying is control over the market, a customer base, and the elimination of a competitor. My recommendation for you, is to pay off the former competing shareholders, constrict them as hard as possible not to build a new competing business in the same space, and kick them out of the business as soon as possible.
Focus your merger tasks on converting the customer base to your own technology/product(s) and throw out the rest. Your tipping point is how quick you can transition your customers to your product(s) – and do not focus on the knowledge/insights you may gather from the M/A.
B – Knowledge & Workforce.
8 out of 10 acquisitions are made from the perception of getting access to knowledge and key persons to compliment your business. In these disruptive times, you may have to churn the business to high-margin services, and acquiring a company is a smart move – as it includes new knowledge to your corporation. Unfortunately over half of all mergers of this type of acquisition – is executed poorly. Reasons is trust.
Your tipping point for this operation is how fast you incorporate the two cultures – meaning that you may displace key positions of former colleagues or CxO to the newly acquired blood. The DNA of the acquired company will often be a better future for your company than your old. Remember you did acquire the company go gain new grounds!
It is the most tough job to pull, as you rely heavily on your team in the months preceding the M/A – and you probably have to throw out some of them.
C – Market expansion.
Market expansion is the mixture where a combined structure of either company, makes a new market player. Often a market expansion is complimentary in terms of technologies and products; meaning you will get a great overlap in terms of knowledge, people and roles. You tipping point for success is how fast you build your new brand or tell your new story.
Turning into professional services, when developing ISV products like ERP can often be hard to tell as people percept your company as a software development company. Be sure to understand why and how to build the story and brand before doing the expansion.
Due Diligence and Reverse Due Diligence
Whether you are selling or buying follow closely and be open to communicate. Your own company will know something is going on no matter you tell them or not. You should engage with your organization early to build confidence in the task on hand.
Another thing to remember, when approached to purchase a “cheep” company, is to understand why the company is cheep. Often a first-mover burned off to must capital on marketing the product(s) – you serve as well. In other words, you are capitalizing on the investment made from that company, so why should you now pay for that investment. You are better of waiting for the company to go broke – or to sell to another buyer, that did not read this blog entry and understood the how and why!
Internal processes often remove focus from customers, and market engagements. Remember this. Best window of opportunity to capture customers is 1-6 months after to competitors have merged.
M/A is great. Use it carefully!