Acquiring and Merging Businesses

Truths, Lies, and Developing Process

By Maurie Cashman

Not all companies are good at acquiring and merging other businesses. We offer targeted acquisition services for companies interested in acquiring other companies. I gave a presentation to a group of executives last month regarding the truth about acquiring companies, the lies that companies tell themselves about their ability to acquire and the process of developing a good acquisition capability. Truths First, let’s dispel a few myths about acquiring and merging companies:

• — Contrary to popular beliefs; companies can and are acquired successfully;
• — Generally acquirers are very good or very poor acquirers;
• — Over 95% of acquisition attempts fail;
• — Acquiring companies is extremely time consuming;
• — Strategic acquisitions can be a strategy for Ownership Transition Planning;
• Nearly half of deals fail to deliver expected value;
• — Sometimes the best way to beat your competitor is to let them have the deal.

Lies Acquirers Tell Themselves

• Smart companies don’t do dumb deals
  • Even companies that are very good at acquisition make mistakes
  • The key to good acquirers are that they learn from their mistakes and implement process to prevent them in the future.
  • Document your most important criteria for doing a deal and force all deal proposals to comply

• We don’t get emotional about deals
  • Well, your target does and you must recognize this and help your acquire to deal with those emotions. Selling a company is usually a very emotional event for the seller;
  • Acquisitions are not black and white transactions. They are not simply an analysis of the financial statements. They require you to operate in grey areas
  • You may have incentives for individuals in your organization that are tied to growth. This should be avoided but can lead to decision making that is in the individual’s best interest but not the company’s.
  • Employees and customers will get extremely emotional. Many sellers will make the assumption that employees, customers and suppliers will remain loyal to them during or after the transaction. The truth is that each of these relationships require careful planning and execution.

• M&A Matter Only During a Boom
  • Acquisitions and divestitures are much like investing stocks – you strategy should be to buy low and sell high;
  • Early movers and contrarians generally fare best;
  • Use scenario planning to develop options under many economic scenarios;
  • Whom do you have in your organization whose job is focused on strategic acquisitions and divestitures?

• You Know All the Companies Available
  • The clients we have represented in Targeted Acquisition Searches have been surprised at the companies we have found that were interested in discussing being acquired;
  • Most companies are quietly acquired without you even knowing they were interested in selling;
  • Do you have anyone responsible for looking for acquisition targets?
  • Do you understand the resources required?
• Only acquisitions create value
  • Divestitures can be just as strategically important
    • A divestiture can free up capital for a core acquisition
    • A divestiture can focus management on the core company business
  • You should always have an exit strategy in place for every business
    • Business continuity plans make business more valuable;
    • A process for continuing to review businesses for divestiture can help you to focus on your core and prevent you from making mistakes and acquisitions that make business less attractive
    • Having a divestiture review plan helps you to always know what you could sell, what it is worth, to whom you would sell, and how.
    • This is particularly helpful when a strategically important acquisition is identified and the organization must be made to accommodate a more attractive acquisition.

Next week we will continue to review mistakes that acquires make and to offer some thoughts on best acquisition practices. Always remember: you are not alone! If you find this information valuable, please pass it along to your friends. The highest compliment we can receive is for you to forward our blog or to comment on it!