Accelerating your growth story through acquisition, particularly when company valuations have fallen and organic growth is harder in recession, sounds like an irresistible option.
M&A can be a huge source of value creation especially in volatile market conditions but it’s also a high stakes game using a skillset that many entrepreneurs don’t have. We found that success depends on a very clear deal rationale, working with great advisors (both formal and informal) and always thinking beyond the completion to how the combined group will come together. M&A like everything else comes down to planning, people and culture.
In this toolkit I set out the criteria that make value creation from acquisition more likely. Having been both on the acquirer side, with two acquisitive listed companies, and selling two VC backed companies to acquirers as a CFO, I can provide some lessons learnt from both principal perspectives. Below is a short summary – the full toolkit is available to download.
Criteria for a successful acquisition
- Value creation driver – the first essential question is why are you pursuing the acquisition?
- Buy v build analysis – Once you have established the means by which you think the acquisition creates value, the next question is why can’t you achieve that yourself?
- Purpose, values and Cultural fit at all levels – Failing to create a clear combined purpose and values or missing cultural mismatches are common reasons for post transaction staff turnover and acquisition failure
Addressing capacity constraints
Growth companies are usually struggling to invest fast enough in their organisational infrastructure to cope with the stretching demands of their own growth, but then on top of this, acquisitions require spare capacity to allow business as usual to progress unaffected. If, for example, you don’t have the second layer of management in place to allow the CEO and CFO to focus elsewhere for a few months, then the post transaction phase will be spent getting the original business back on track and all the great opportunities from integration synergies (both revenue and cost) will disappear.
Clarity of vision
A clear external vision for the combined company in the marketplace is important, but the combined business needs to go beyond that and also have an internal narrative of how that will be delivered. This requires clarity on organisational structure across the combined business and most importantly, clarity of roles.
Successful decision making
Well-executed acquisitions can significantly improve the value creation of your company. To give yourself the best chance of succeeding you should follow the decision tree in the attached toolkit. If you would like to discuss further please send any questions you have for me by email.
