Companies spend trillions of dollars every year on new acquisitions, but did you know that as many as 70-90% of acquisitions are failures?* Why? What makes an acquisition a failure – and, more importantly, how can you make your acquisition a success?
At Indian River Advisors, our team has a combined century’s worth of experience completing successful mergers and acquisitions – small companies, large companies, private sector, public sector. We’ve done it all. Our partners work as a team to bring our clients a unique way to complete corporate transactions – whether they want to sell a company, to make a strategic acquisition, or to raise institutional debt or equity capital. Every partner has been a C-level executive during his/her business career and has had experience completing successful corporate acquisitions, raising investment capital, or selling their own firms. We work hard to help our clients complete transactions at the highest value – and we know what works.
In the Harvard Business Review article, “M&A: The One Thing You Need to Get Right,” author Roger L. Martin insists the key to a successful acquisition is this: “Companies that focus on what they are going to get from an acquisition are less likely to succeed than those that focus on what they have to give it.” Acquisition disasters happen, Martin argues, when companies are in the “take mode.” In other words, when companies acquire another company to help them get into a new market, this doesn’t put the buying company in a strong position. This lets the seller elevate its price, especially when another buyer is also interested in whatever is being sold. Instead of focusing on what you can “take,” Martin argues, buyers should focus on what they have to offer, how they can make the acquired company more competitive, and how they can work together as partners. Martin writes that an acquirer can improve its target’s competitiveness in four ways: “by being a smarter provider of growth capital; by providing better managerial oversight; by transferring valuable skills; and by sharing valuable capabilities.”
Another reason acquisitions often fail, according to Clayton M. Christensen, Richard Alton, Curtis Rising, and Andres Waldeck in their article “The Big Idea: The New M&A Playbook,” is because “executives incorrectly match candidates to the strategic purpose of the deal.” The Harvard Business Review authors note that executives often fail “to distinguish between deals that might improve current operations and those that could dramatically transform the company’s growth prospects.” Due to this misunderstanding, companies often pay too much for a company and then do a terrible job integrating the acquisition.
How can this be avoided? The authors note that it’s imperative that you know what you’re buying. “The best way to do that,” they write, “is to think of the target in terms of its business model.” What is their customer value proposition? What is their profit formula? What resources do they have to help them deliver on their customer value proposition? And, finally, what are their processes (manufacturing, R&D, budgeting, sales, etc.)?
Often when companies acquire other companies, they focus on the best way to “integrate” them into their existing business, but according to Prashant Kale, Harbir Singh, and Anand Raman, a better approach would be to partner with them. In many successful mergers, the purchasing company allows the purchased company to continue to operate independently – doing what it used to do but with new supports that allow it to do it better. For the authors, partnering “entails keeping an acquisition structurally separate and maintaining its own identity and organization.” They continue, “The new parents simply lay down their values to serve as a beacon and create a fresh sense of purpose in their acquisitions.” You can look for “synergies” and choose new ideas that aren’t disruptive to what that company is already doing well. Thinking about the company you’ve acquired as a “strategic alliance” can create more opportunities for success and collaboration.
If you’d like to talk with us about a potential merger or acquisition – or if you have general questions about how to maximize enterprise value before entering a transaction – please contact Andrew Scherer** at email@example.com or 443.535.0642. As Partner and Director of Research at Indian River Advisors, Andrew is committed to using the skills and expertise he has developed over 20 years to help entrepreneurs establish, grow, and ultimately sell their businesses. He has extensive experience working with technology companies to evaluate their market, build usable financial models, and overcome businesses challenges as they move from concept to commercial products. He also brings to Indian River Advisors research experience in market opportunity analysis, competitive analysis, strategic partnering opportunities, US Federal government contract vehicle analysis, business planning, product development, and corporate valuation studies. He looks forward to talking with you.
*This information is from a third-party source (Harvard Business Review), and we are not responsible for its content.
** Members of Indian River Advisors are Registered Representatives of, and securities transactions are conducted through, StillPoint Capital LLC; Member FINRA/SIPC.
StillPoint Capital is not affiliated with Indian River Advisors.