It’s a sad fact that the best acquisitions are often the ones that you didn’t make. That is to say that many businesses fail to make them work as well as they hoped when they did the deal. The whole psychology and process of making successful acquisitions is important whether you are the buyer – or whether you are selling a business and need to understand and properly appeal to potential buyers.
Studies have shown that most mergers and acquisitions have transferred value from buyer to seller. So why do so many folk persist in trying to buy? Well it seems that those who get it right and regularly get involved in M&A do enjoy superior returns. Boston Consulting Group found that it’s the companies who treat the process in a systematic “industrial” manner pursuing a deal only when the expected returns are above the cost of capital. They found that the three key ingredients for success are strategic focus, valuation discipline, and early integration planning. This seems kind of obvious – but many companies ignore them.
I’ve seen a huge range of approaches to this from buyers as we get involved in marketing businesses – and with Cambridge’s technology community this often involves approaching potential buyers around the world. Different cultures have different outlooks, and of course there is a huge difference between venture capital backed acquirers; very focused on what it does to their value, and the dilutive effect of raising extra equity finance to fund the deal, and quoted businesses; very focused on the headline price/structure and corporate governance issues. The other thing that really stands out is that the regular or serial acquirers have well established processes for integration.
We sold one business recently where the purchaser flew in with a team of 10 to begin a serious charm offensive and integration plan first thing in the morning after they signed off the deal. More to follow in later posts about how to get the right strategic focus for M&A, valuations, and integration.