Mergers and Acquisitions – not for the fainthearted
This article was first published in Business Times on 14 February 2020
Mergers and Acquisitions – not for the fainthearted
John Bittleston, Terrific Mentors International
In view of today being Valentine’s Day, today’s column focuses on Mergers and Acquisitions, as business acquisition and romantic relationships have one important thing in common – both are to establish a partnership. As anyone who has ever married knows, mergers are not for the fainthearted. Preparations there must be, of course, but however thorough they won’t align expectations with reality. Due diligence will be pursued with vigour and inquiry, as it should. The figures will be scrutinised to see where savings can be made. They may present a plump dividend as a low-hanging fruit. Alas, the reality will be that the harvest this year has already passed by. Next year anything might happen.
Know your partner
But you have to know what you are planning to acquire, in as much detail as possible. An acquisition will be the biggest (or one of the biggest) things you do in your business life – just as a marriage is in your domestic life. There is no equivalent in business to love but there is fascination. Beware the temptation of attractive businesses. You usually pay a hefty premium for them, often lose the impetus of what were probably start-ups reasonably recently and demotivate your acquisition’s employees with procedures and processes they don’t understand or want.
During an acquisition, typically both parties start off as relatively equal partners in the early stages. Later a need for one party or the other to dominate may emerge. Strength of character, logic of strategy, power of assets can all decide this. Timing is the secret of a good merger. Too fast and you lose the confidence of the acquired. Too slow and you lose the profit progress you hoped to make. In my mergers and acquisitions, I have been guilty of both at times. I adopted processes and procedures ‘guaranteed’ to succeed.
I soon learnt how wrong that was. First, I examined the strategy I was following, not in grand, ‘apple pie’ terms but in detail. I started with a clear objective, in my case to spread the sources of our revenue so that if something drastic happened to our biggest, and very profitable, product line we were somewhat cushioned against the hit. Second, I looked at our skills, our experience and our ambitions – and that meant the personal ambitions of the senior individuals. They were building careers and their ambitions were a big part of my design for a family business interested in its people at a very practical level. Third, I determined the assets I wanted, not because I liked them but because I thought they were being poorly run and underexploited.
I made a point of being prepared to negotiate at the pace of the other person. In one case, a big company I bought in New Zealand, I negotiated for two years. It was worth it because I struck a very good bargain for our side. Negotiation should always be done at more than one level. In this way you learn more about the company you are acquiring and if all levels of negotiator are sympathetic and patient the target will become more malleable and easier to understand.
Rigid procedures are often the cause of failure in business, nowhere more than with acquisitions. However well thought out the process you are being recommended it will almost certainly not take account of the personalities and attitudes of the acquired. You cannot at one moment say that business is heavily dependent on people and at the next ignore the contribution those who have been bought are going to have to make. But many companies do. So much effort goes into evaluating, calculating the rationalisations, negotiating the price, that reading the people and the culture of the business to be acquired can be completely forgotten.
Treat your acquired business like a valued guest
An acquired business should be treated as a guest at the table of the acquirer. Their success should be studied. How they achieved the price they got is at least half down to the effort and intellect they put into developing the business. If you can get them on side their contribution to the next steps can be considerable. If you merely impose your systems on the acquired, they will resent it and may sabotage the merger.
One of the most difficult things to decide is how your mergers and acquisitions should be done. At one end of the spectrum is the highly specialised team, well qualified, sharp with figures, able to assess the value of a business quickly and perhaps also to point out weaknesses that may play a part in the negotiations. I like these teams of high flyers – but not for acquisitions. Frankly, anyone can evaluate a business given the criteria for doing so. You need to know the acquiring business thoroughly if you are to know whether you can get a fit, and how.
Let your high flyers fly
High flyers in business, whatever their discipline will eventually end up running people, probably in a P&L based business. The span of disciplines required to do that is considerable. Let your high flyers become immersed in the business they are acquiring and let the business continue doing what you acquired them for. In a very real sense, acquirers are the mediators between different cultures. They should be immersed in both.
There are times when the reason for acquiring is clear and the description of the acquired follows it closely. In my experience these are rarer than you think. Frustrations arise, due to the fact that once you become an assertive or aggressive acquirer people get to realize it and the price goes up. That’s why I always let subsidiary or fringe companies within the group acquire businesses, too.
A good acquisition is not an ice cream to be slowly consumed as a treat. It is an adopted baby and it needs the same attention as one. If the early stages are a bit messy, don’t worry. That is natural at the start. As you nurture and grow the acquisition, even if you are merging it into your own business, your early TLC will pay off handsomely.
And you will have done something beautiful, as opposed to brutal.