What capacity do you have to take on an acquisition?
Few first time acquirers have any idea of just how much time and effort will go into an acquisition. Usually they acquire a firm similar to their own, with similar or complementary products or services and often in their local geography. Most often they have been sensitive to not taking on a business which is too different or at a great distance knowing that the risks are likely to be too high. What they usually have not predicted is just how much senior executive time the process will absorb, how disruptive to their business the activity will be or what level of funding it is going to take to see it through to a successful conclusion.
Few acquisitions go smoothly
The lead up to an acquisition is something of a courting process. Everyone wants to know as much about the other as possible before they make a commitment. There will be many dates that don’t work out and some that linger well past their use by date. Even the most likely partners will go though some rocky times as they mis-communicate intentions or get sidetracked with red herrings. There will be many more meetings than expected, the service providers will use up more time than budgeted and the negotiations will be more complex than hoped. To limit the risk of the wrong decision, several members of the senior management team will be asked to investigate various aspects of the target business or the projected post-acquisition organization. All this activity is done under pressure to close the deal and can lead to a lack of attention to normal business with resulting loss of customer goodwill and revenue loss or delay.
Even once the deal is done, the pressure does not let up. There will be numerous issues to deal with in terms of change of ownership, integration or intervention activities and problems of redundancy, new organization structures, new internal and external relationships to establish and various infrastructure changes. All this is done during a period of rapid change and the loss of some staff, both in the acquired firm as well as the acquirer. In this period of disruption, funds also have to be found to keep the existing business going as well as finance the acquisition.
Don’t underestimate what it will take
What this tells us is that acquisition are highly complex, disruptive and resource hungry. They require considerable high level management attention as well as some level of dedicated project management and change management resource. The bottom line – if you are not well prepared and resourced to take on an acquisition, it may be the worst mistake your business will make.
However, not all acquisitions look the same. Many types of acquisitions can be undertaken with less disruption to the acquired business as well as the target firm. An acquisition strategy should be able to factor in what level of management intervention is needed throughout the various stages of the process. External specialist can be used throughout and short term contracts can be used to provide some of the resources required. Management needs to be sensitive to their involvement and put in place succession plans for when they are away working on the acquisition project. Simply put – only take on what you can successfully manage.
