In the last 15 years more than 52% of US listed companies have disappeared, and while the average life of such a company in 1955 was 61 years, this was down to 17 years by 2015. Yet it is estimated that up to 80% of acquisitions and mergers fail. So how can companies wanting to acquire, in particular digital assets, maximise their chances of success?
- Be clear about the reasons for the acquisition.
- Have a strategic plan for how the two companies will be integrated (or not).
- Understand the fears and expectations of both workforces around the likely impacts.
- Ensure that your customers are fully briefed and seeing advantages for themselves.
So why are you planning this takeover?
Remember that growing market opportunities means more risk as well as greater potential, and you need specific, well-articulated value creation ideas right from the start.
The five reasons for A&M are:
- Speculation – acquiring a smaller company with potential to supplement what you do
- Value creation – improving the performance of the purchased company
- Consolidation – removing competition
- Resource acquisition – this can be skills, market position or technical assets
- Accelerating your market position
Elements such as smart growth capital, balancing management oversight and independence, transferring valuable skills, sharing capabilities, and cross marketing cannot be one-sided. You need to focus on what you can add, not just what you get.
You may want to consider engaging a third-party to provide an objective viewpoint, especially if your company is small and/or with little knowledge/experience of acquisitions and mergers. That third party may also bring HR resources and useful data where one or more parties to the acquisition are smaller/less well resourced.
An acquired company may just have to adapt to its buyer’s objectives but an acquirer with a strategic need can also inspire.
Once you know why and what it is that you want to achieve, you then need a strategy for maximising value realization.
The main challenge when trying to buy digital assets in particular, is how to integrate these with your own structure and culture – digital companies tend to be far more agile than the large companies seeking to acquire them so you need to find what works for both parties.
Remember that acquired assets do not have to be subsumed into the (usually) larger company without a trace from day one. You need a structured program for integration – this can be planned over years. But sometimes integration can be harder if there is a delay before anything changes. But beware of seeking full alignment at any cost – you do not want to lose valuable assets unnecessarily.
You do need a segmented approach. Your guiding principle needs to be the process for integration – are you looking for consolidation, transformation, tuck in and/or strategic growth? Each deal will have its own characteristics driving the needs of the merger.
And don’t forget that you are dealing with people: human behaviour can have both a positive and a negative effect on the success or failure of an acquisition.
The employees of both companies may be used to a different culture, for instance in terms of whether they deal with other businesses or customers directly. For the acquired company personnel, the experience can be akin to a grieving process, even without the threat of job losses and/or changes in terms and conditions.
While the main focus of any acquisition tends to be on getting the deal done, it is vital to recognize what might be good to change rather than each party clinging to its own way of doing things. Engaging a third party can help with this.
Many acquisitions involve two competitors where the merger will result in significant job losses. You need to try and avoid losing employees that you want to keep. Training can be one incentive, particularly where you are reducing tech numbers.
If you do not rationalize straight away, you may have issues with the two workforces continuing to operate as if they were still in competition. While a company selling a premium product and one selling a budget version might seem an ideal match, there can be challenges in accommodating the differing approaches to sales. You need your sales force on your side, which is particularly challenging where there are job losses and you need to ensure that you have resources to deal with redundancy situations.
Anticipate culture clash aspects, beware of loss of talent, prevent loss of revenue, and be aware of customer impacts/concerns.
Integrated customer communications are vital, as early as possible in the process – help them see the wins for them.
But if you decide that the M&A route is not for you at this time there are still ways to innovate:
- Set up an entrepreneur programme.
- Ask your customers what they want/don’t want.
- Get involved in acceleration programs that can give you access to tech, mentoring etc.