What makes an acquisition successful?
The standard definition is that the desired outcomes around financials, commercials and strategic objectives set at the time of buying are all achieved and the acquisition is fully and seamlessly integrated into the acquiring firm.
If you are leading either team (buyer or seller) the chances of failure are high and the blame for getting things wrong falls squarely on your shoulders.
Why do acquisitions fail and what can you do to avoid the pitfalls?
Many books have been written, often based on the extensive real-life experience of the author, that provide an array of reasons why acquisitions fail. Denzil Rankine in his book Why Acquisitions Fail sets out his view of the 20 reasons that acquisitions fail. In my next series of articles I plan to review and comment on each of Rankine’s reasons.
My experience, after advising on many corporate investments and acquisitions primarily in the Media and Entertainment sector is that Leaders often forget what they do best when their attention is diverted away from managing their own business and get too deeply embroiled in the Deal Management to provide the communication and leadership to both sides at a time when it is most needed.
You might think that you understand the new business, its market, its business model and the synergies but if you are not looking at the business from a balanced perspective you will, most likely not see the real problem areas and will fall into unseen traps.
If you consider the four perspectives to every business (Financials, Systems and Processes, People and Customers), well run and well lead businesses will have all four in balance (see Kaplan and Norton’s book, The Balanced Scorecard: Measures that drive performance (Harvard Business Review (1992) for further reading.) So often, the due diligence carried out by acquiring firms is out of balance. Deal Flow management will concentrate on the Financial and Legal aspects of a target firm. Where is the balance? Why is there so much less emphasis on the Systems and Processes or the people employed by or engaged with the target firm? The common thread amongst all of the books I have read and from my personal experience is that most often, the cause of post acquisition failure is misaligned culture, poor communication and a lack of clear leadership.
It’s all about the advice you take.
Due Diligence requires expertise. The major firms offering DD services are very good at what they do. However, the majority assume that you know the firm you looking to acquire. They assume that you have a detailed understanding of the firm’s business model, it’s customers, it’s systems and processes and it’s staff. They will therefore concentrate on the financial and the legal aspects while thinking that you have the other perspectives in hand… and that is the root cause of most acquisition failures.