Some corporations stand out as best practice acquirers
If you were guided by the statistics which show that the majority of acquisitions fail to achieve the anticipated benefits for the acquirer, you would probably not go down that path as an expansion strategy. Even so, some frequent acquirers are consistently successful so there must be some accumulated wisdom out there which can help the prospective acquirer avoid the most common mistakes.
The major problem is that acquisitions are highly complex activities which occur over a short period and can often severely disrupt both the acquired firm as well as the buyer. Many corporations take on an acquisition without first building up knowledge of the process and then wonder why it all goes badly wrong. Too often acquisitions have been driven by a desire to be bigger rather than smarter. If you look at successful acquirers they not only go about the process in a highly systematic and objective manner but they are very careful about which risks they take on.
Start small and build an acquisition capability
The research into successful acquisition strategies reinforces the view that it is better to walk before you run. Risks can be limited by starting out with small acquisitions where the impact of failure is contained. One could argue also that taking on acquisitions which are left as stand-alone entities, even if some aspects of the business are enhanced, avoids the pitfalls awaiting those who jump into merger activities. There are, in fact, many forms of acquisitions which leverage IP or capability of the acquiring firm into the newly acquired subsidiary without merging operations. These limit the impact of the acquisition on the acquirer while making marginal changes to the purchased entity.
Smart acquirers tend to buy well run companies and avoid fire sale or firms in trouble. Firms which are underperforming often need considerable remedial work to bring them up to a sustainable level. This not only eats up quality management time of the acquirer but extends the time over which the acquisition can be made self supporting. A smarter acquisition strategy is to target firms which can quickly take advantage of the economies of scale, cost saving synergies or intervention activities of the acquirer. A business which is already well managed and has sustainable profits does not require urgent intervention and so the acquirer can take more time to make those changes which are beneficial to the acquired entity.
Buy smart and buy often
Frequent acquirers build corporate intelligence over time through a series of small acquisitions until they have a set of refined processes for targeting, evaluating, negotiating and managing acquired firms. They buy throughout the economic cycle and pace themselves in terms of how much activity they can absorb as they expand. They stick to their evaluation criteria and investment hurdles and don’t take on something which they cannot easily manage.
The fundamental lesson for the new acquirer should be to take it slowly, start small and access the best experience that can be afforded. Acquisitions are one of those activities where getting it wrong can put your entire business at risk.
