15 strategies for a successful acquisition

acquisition

Technology companies are more likely to be acquired than go public, but too little attention is paid to making these acquisitions successful for either the target or the buyer.

In the first half of 2021, Asian merger and acquisition activity surged to its second-highest level ever, totalling US$707.7 billion. That is up 75 per cent from the same period a year earlier.

Despite the vast amount spent on acquisitions, not all M&A is successful. A recent study in Australia found that 60 per cent of public company M&A deals fail.

I have completed more than 30 corporate acquisitions on both sides of the transaction. Here, I have distilled my most important, hard-won lessons to ensure acquisitions are successful.

Be crystal clear

The acquirer needs to be crystal clear about how they expect to create value via the acquisition. In many cases, the strategic logic is not clearly articulated, or various stakeholders in the acquiring company have competing visions. Deals without a clear strategy for value creation are more likely to be less successful.

Seek revenue, not savings

Acquirers often put too much emphasis on cost reductions and too little on revenue synergies. Depending on the case, there may be massive upside in revenue synergies, but attaining them can require focused effort.

Also Read: Bitkub becomes unicorn after SCB’s acquisition of its majority stake for US$536M

Tap on the boosting effect

The impact of the merger between Juwai Limited and IQI Global to create Juwai IQI was transformative. Most revenue drivers doubled or tripled after the merger. Don’t underestimate the brand and morale-boosting effect a merger can have on staff, customers, and other stakeholders.

One bad business cannot save another.

Some executives seek to combine two outdated or poorly performing businesses hoping that they will do better together than apart. They won’t. When two poor companies are combined into one, you proportionally worsen the outcome.

For example, combining two print businesses has not succeeded anywhere in arresting this sector’s continued implosion of profitability.

The acquisition is just the start.

It can take months to complete an acquisition or merger, but doing so is just the campaign’s starting point to successfully combining the two businesses. Consider what happens when you buy a software system. You negotiate and pay the license fee, but the hardest work is only beginning.

The license fee is often overshadowed by the costs of integration, which can be five to 10 times the license fee itself and can require the sustained attention of a large team.

After a merger or acquisition, you will also need to invest additional time and effort. Consider sending dedicated post-merger integration teams to critical sites to shepherd the teams towards successful integration.

The roadmap is more important than the advisors

You may spend hundreds of thousands of dollars or even millions on your M&A advisers and lawyers. But your acquisition can quickly still fail. The advisors are essential, but your roadmap is crucial. All the key players must fully understand and agree to it. Your strategy is more critical than your advisers.

Decide what the real assets are

Your acquisition strategy, due diligence, and post-acquisition implementation will all be structured to make the most of the benefits you hope to obtain. But you must clearly understand what you are acquiring and how to protect the value of these assets. This understanding must inform your roadmap.

Also Read: SCB Abacus raises US$12M in Series A to accelerate product development, talent acquisition

Not delegating

You cannot delegate the hard work of M&A. This is a task for the Executive Chair, Managing Director, or CEO. You cannot leave it to external advisers or lower-level managers. The senior team’s level of involvement can determine the success or failure of extensive integrations.

Don’t over-optimise the purchase price

If you negotiate too hard on the purchase price, you risk alienating the target’s founders or other key individuals. You then risk undoing the M&A’s benefits by quickly losing senior team members or seeing a significant sell-off in shares after completion. That could undermine the logic of the acquisition, investor confidence, and potentially the share price.

Have a clear DD plan

As the first step in your due diligence effort, set precise levels of materiality. Decide how significant particular factors or assumptions are to the purchase. Having this clear ranking of priorities at the start allows you to more easily sort through the masses of information likely to be made available to you in the data room.

Keep the lawyers focused

While your advisers probably genuinely want to help you make the best possible decisions, they also have a financial interest in attributing as many hours as possible to your account on their timesheets. Keep your lawyers focused on avoiding a cost blowout.

It’s not just about numbers

The numbers may add up, and the acquisition might still be a bad idea. Look out for irreconcilable differences in culture, staff norms, etc. Many buyers assume they can easily rectify such challenges once the acquisition is complete, only to see their efforts fail.

Be on the spot

Remote acquisitions are very tricky. It would be best if you went to the target. To ensure better integration after the M&A, locate some functions of the newly combined business in the target. When bringing teams together into a single workspace, make an effort to restructure the entire space to communicate that the target alone won’t have to bear the burden of integration.

Also Read: User acquisition strategies to grow your app from Adjust and ironSource

It starts at the top

Avoid an adversarial approach to the M&A. After completion, do everything possible to ensure the entire business shares a culture and point of view. “Us versus them” starts at the top, and mid-level executives will take their cues from the senior team on how to act towards their new colleagues. Set a good example by going out of your way to bring the combined leadership team together.

Make or buy?

If you buy technology, always do a solid “make or buy” analysis. Too many leaders overestimate the difficulty of building their technology and underestimate the difficulty of successfully acquiring it.

Given what you now know about how difficult M&A can be, you may want to adjust your assumptions. I hope these tips help ensure any M&A you are involved in is completed successfully.

Editor’s note: e27 aims to foster thought leadership by publishing views from the community. Share your opinion by submitting an article, video, podcast, or infographic

Join our e27 Telegram group, FB community, or like the e27 Facebook page

Image credit: tirachard

The post 15 strategies for a successful acquisition appeared first on e27.

,
acquisition

Technology companies are more likely to be acquired than go public, but too little attention is paid to making these acquisitions successful for either the target or the buyer.

In the first half of 2021, Asian merger and acquisition activity surged to its second-highest level ever, totalling US$707.7 billion. That is up 75 per cent from the same period a year earlier.

Despite the vast amount spent on acquisitions, not all M&A is successful. A recent study in Australia found that 60 per cent of public company M&A deals fail.

I have completed more than 30 corporate acquisitions on both sides of the transaction. Here, I have distilled my most important, hard-won lessons to ensure acquisitions are successful.

Be crystal clear

The acquirer needs to be crystal clear about how they expect to create value via the acquisition. In many cases, the strategic logic is not clearly articulated, or various stakeholders in the acquiring company have competing visions. Deals without a clear strategy for value creation are more likely to be less successful.

Seek revenue, not savings

Acquirers often put too much emphasis on cost reductions and too little on revenue synergies. Depending on the case, there may be massive upside in revenue synergies, but attaining them can require focused effort.

Also Read: Bitkub becomes unicorn after SCB’s acquisition of its majority stake for US$536M

Tap on the boosting effect

The impact of the merger between Juwai Limited and IQI Global to create Juwai IQI was transformative. Most revenue drivers doubled or tripled after the merger. Don’t underestimate the brand and morale-boosting effect a merger can have on staff, customers, and other stakeholders.

One bad business cannot save another.

Some executives seek to combine two outdated or poorly performing businesses hoping that they will do better together than apart. They won’t. When two poor companies are combined into one, you proportionally worsen the outcome.

For example, combining two print businesses has not succeeded anywhere in arresting this sector’s continued implosion of profitability.

The acquisition is just the start.

It can take months to complete an acquisition or merger, but doing so is just the campaign’s starting point to successfully combining the two businesses. Consider what happens when you buy a software system. You negotiate and pay the license fee, but the hardest work is only beginning.

The license fee is often overshadowed by the costs of integration, which can be five to 10 times the license fee itself and can require the sustained attention of a large team.

After a merger or acquisition, you will also need to invest additional time and effort. Consider sending dedicated post-merger integration teams to critical sites to shepherd the teams towards successful integration.

The roadmap is more important than the advisors

You may spend hundreds of thousands of dollars or even millions on your M&A advisers and lawyers. But your acquisition can quickly still fail. The advisors are essential, but your roadmap is crucial. All the key players must fully understand and agree to it. Your strategy is more critical than your advisers.

Decide what the real assets are

Your acquisition strategy, due diligence, and post-acquisition implementation will all be structured to make the most of the benefits you hope to obtain. But you must clearly understand what you are acquiring and how to protect the value of these assets. This understanding must inform your roadmap.

Also Read: SCB Abacus raises US$12M in Series A to accelerate product development, talent acquisition

Not delegating

You cannot delegate the hard work of M&A. This is a task for the Executive Chair, Managing Director, or CEO. You cannot leave it to external advisers or lower-level managers. The senior team’s level of involvement can determine the success or failure of extensive integrations.

Don’t over-optimise the purchase price

If you negotiate too hard on the purchase price, you risk alienating the target’s founders or other key individuals. You then risk undoing the M&A’s benefits by quickly losing senior team members or seeing a significant sell-off in shares after completion. That could undermine the logic of the acquisition, investor confidence, and potentially the share price.

Have a clear DD plan

As the first step in your due diligence effort, set precise levels of materiality. Decide how significant particular factors or assumptions are to the purchase. Having this clear ranking of priorities at the start allows you to more easily sort through the masses of information likely to be made available to you in the data room.

Keep the lawyers focused

While your advisers probably genuinely want to help you make the best possible decisions, they also have a financial interest in attributing as many hours as possible to your account on their timesheets. Keep your lawyers focused on avoiding a cost blowout.

It’s not just about numbers

The numbers may add up, and the acquisition might still be a bad idea. Look out for irreconcilable differences in culture, staff norms, etc. Many buyers assume they can easily rectify such challenges once the acquisition is complete, only to see their efforts fail.

Be on the spot

Remote acquisitions are very tricky. It would be best if you went to the target. To ensure better integration after the M&A, locate some functions of the newly combined business in the target. When bringing teams together into a single workspace, make an effort to restructure the entire space to communicate that the target alone won’t have to bear the burden of integration.

Also Read: User acquisition strategies to grow your app from Adjust and ironSource

It starts at the top

Avoid an adversarial approach to the M&A. After completion, do everything possible to ensure the entire business shares a culture and point of view. “Us versus them” starts at the top, and mid-level executives will take their cues from the senior team on how to act towards their new colleagues. Set a good example by going out of your way to bring the combined leadership team together.

Make or buy?

If you buy technology, always do a solid “make or buy” analysis. Too many leaders overestimate the difficulty of building their technology and underestimate the difficulty of successfully acquiring it.

Given what you now know about how difficult M&A can be, you may want to adjust your assumptions. I hope these tips help ensure any M&A you are involved in is completed successfully.

Editor’s note: e27 aims to foster thought leadership by publishing views from the community. Share your opinion by submitting an article, video, podcast, or infographic

Join our e27 Telegram group, FB community, or like the e27 Facebook page

Image credit: tirachard

The post 15 strategies for a successful acquisition appeared first on e27.

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