Do it Right: A key lesson for acquisition success

2015, 01 Oct | In Build Company Value, Buying a Business, General Management, Investment Banking, Merger and Acquisitions, Selling a Business

Do It Right

Worldwide business spends trillions of dollars annually on acquiring other businesses. Yet there are lots of studies that say anything from 50% to 90% of those acquisitions are rated as failures. At first glance something doesn’t seem to add up here, so the question is why do businesses continue to buy other companies?

Businesses continue to acquire because if done right they accelerate the value of the company in the short, medium and long term. So what do the successful businesses do that most don’t?

The point here is of course “if done right“. Most failures can be traced back to problems that occur throughout the acquisition process. With the right focus at the start many can be corrected, indeed can be avoided in the first place. In the first of a series we outline the role business strategy plays in M&A success.

Build a strong Business Strategy….and stick to it when acquiring!

Regardless of how large or small the company the importance of spending quality leadership time in developing a strong and clear business strategy cannot be underestimated. A strong business strategy creates a clear sense of corporate direction and acts as a point against which future strategic decisions can be tested for alignment. Many businesses do not spend enough time thoroughly understanding their business model, their markets and developing a robust business strategy. But even for many of those that do, something seems to happen when making acquisitions. The business strategy goes AWOL!

Many companies seem to forget their core strategies, their strengths and weaknesses, their core competencies and what made them successful in the first place. Some acquire indiscriminately in an attempt to drive growth (the Hungry Hippo strategy), some in response to an opportunity that just happen to be offered up to them (the Reflex strategy), and others buy into a new market area or a core competency that is completely outside their knowledge area (the Gambler strategy). Later many are uncertain of what to do with the acquisition once they own it (the Aimless strategy) and subsequently make flawed decisions throughout the whole process.

What do Successful Companies do? The successful companies who “do it right” take a wholly different approach. Their Business Strategy is the bedrock upon which they acquire and they spend a lot of focused leadership time getting that right. They revisit the Business Strategy periodically to ensure that it is current and remains relevant to their business and market place. If an unexpected acquisition opportunity arises it is coldly evaluated against their business strategy, does it fit into their core competencies, their strategic and operational strengths, their 5yr plan or solve a weakness? If not, it is rejected!

Their acquisition strategy is built upon and directly tied into their business strategy. These companies know what type of acquisitions they need in order to advance their business, achieve the value growth their plans call for or proactively defend a market position. Armed with this clear focus they are able to go out into the market and identify potential targets and/or evaluate that unexpected opportunity for fit.

There is growing evidence that suggests that those successful acquirers with a clear M&A strategy linked to a robust business strategy also have another advantage. Their success is not only on extracting maximum positive value from an acquisition, they also benefit from a lower success to reject ratio during the evaluation stage. This gives them additional areas of savings in cost, Executive time, etc.

Lesson #1: As a business leader you need to develop a clear, strong business strategy that includes your core competencies, your strengths and weaknesses. You need to periodically revisit the fundamentals of that strategy to ensure it remains relevant to the market environment you operate in. Based off of your newly created business strategy, create your acquisition strategy. Ensure it is directly aligned to your business strategy. Finally the hardest part of all, maintaining focus. Stick to your Business and Acquisition Strategies when seeking an acquisition or presented with that ‘rare’ opportunity.


Mark Spickett


Merit Harbor Group