Acquisitions are a useful business strategy utilised across industries for a multitude of reasons. Their success rate can vary drastically and is closely attributed to the time committed to carefully considering all aspects of the transaction. From inception through consummation, Forbes has estimated that leaders can expect to commit a period of at least four to six months to the acquisition process.
If your business is looking toward acquisition as a means to improve your organisation's current position within the market, read on to learn some of the most important considerations that will lead to either the success or failure of your acquisition.
Why are you seeking out this specific company?
Before you initiate the process of acquisition, consider the value of the company to your own aside from the literal fiscal gain.
Companies acquire other organisations in an effort to gain economies of scale, diversify their holdings, improve market share, increase synergy or reduce costs, as described by Investopedia. The purpose of your acquisition should be motivated by your strategic business objectives. The transaction should in some way further propel your organisation's trajectory toward your long term goals.
For example, if you are looking to expand your market share in a new country, the company you seek out should have a reasonable presence in that nation already. Similarly, if you are looking to instead gain economies of scale, the acquired business should have strong internal production processes or possess assets that can further your own capacity.
Once you understand the core motivation driving your organisation's interest in acquiring a new company, it is imperative to measure their candidacy. While the overall cost is a significant factor in the decision-making process, companies often fail as their leaders become too concerned with saving capital and fail to fully consider the long-term value and viability of acquisition. Just because a company costs less than one of its comparable competitors does not mean it will make for a better acquisition.
How will you align your cultures?
During this transitional period, do not forget to dedicate focus to your people and culture. Harvard Business Review found that between 70% and 90% of all mergers and acquisitions fail. The reasons for this high failure rate are complex, however, a leading factor is that oftentimes managers overlook the differences between the two organisations' cultures.
Deloitte defines company culture as the long-standing, largely implicit shared values, beliefs and assumptions that influence behaviour, attitudes and meanings within a business. While quantifying the value of an acquisition within the context of your business objectives is critical, it's just as important to consider how you managers will go about blending their teams. The decision-making processes, leadership style and even informal dynamics between employees will make or break your acquisition.
Experts have warned that a drastic shift in company culture can generate turnover among employees, which rings especially true for top talent, who are usually the most mobile compared to their peers. Losing the intellectual capital these employees represent can quickly undermine any of the value gained in the process of acquisition.
Take the time to understand the mission, values and culture that motivate employees at your own organisation as well as at the business you plan to acquire. Find and capitalise on any overlap within the two companies, while also identifying ways to best remedy the most significant differences that could lead to further obstacles. One method that Culture Amp has recommended is that companies actively seek out and collect anonymous employee feedback throughout the acquisition process. By opening and maintaining a line of honest communication, leaders will be able to bolster employee retention rates and allow their teams to have a space to share their thoughts.
Careful planning, transparent communications and opportunities for team training will be essential to integrating cultures across teams.
Do you need professional assistance?
Even the most experienced business leaders can struggle when it comes to planning and executing the best strategy for an acquisition. This can be an expensive and time-consuming process, and most companies typically do not internally possess the competencies required to complete a successful acquisition.
Utilising a team of third-party advisors to assist during this tumultuous time can help your business to succeed during each stage of the acquisition process. Professionals can help you identify potential candidates, negotiate all commercial elements of the transaction and even forecast the future of the business in the long-term.
At WMC Accounting, our experience can save you from stress and provide you with the great opportunity a business acquisition or merger can be. If you are interested in pursuing an acquisition or need any additional help managing your business assets, contact us today.