By Hal Craig, Trout Creek Consulting, LLC
This is the second of two parts about questions to ask before making a merger or acquisition.
Is there a good cultural fit between the buyer and target? It’s a given that firms must learn to (a) work effectively with people around the world since the locations of customers, suppliers, talent, and regulators necessitate a global perspective; (b) adapt to and adopt new technology; and (c) succeed in an environmental of generally increasing regulation. Separate from this, the cultural fit between buyer and target organizations is very important for synergy realization, keeping the “magic” that made the acquirer and target successful as standalone companies, and ultimately, the ongoing viability of the merged organization. The many facets to consider when assessing cultural fit include:
Are there other ways to achieve the strategic vision? Is this the only acceptable strategic vision? Strategic buyers can become fixated on a specific target or targets – “either we buy X or bust” – either overpaying to secure the target or fumbling going forward when the acquisition doesn’t occur. It is very important for companies to think through multiple routes to reach their desired strategic vision. Having a “first choice” acquisition target shouldn’t mean an “only choice” path to growth.
Strategic visions so narrowly defined as to allow only one or two acquisition targets with minimal alternative routes (e.g., joint venture, internal development which is otherwise known as innovation) to achieve the vision may be unachievable given the probability of acquisition success. Viable strategic visions should (a) result in value creation for the firm and (b) be achievable via multiple paths.
Does the acquisition move the needle? This question is not an endorsement of large, transformational acquisitions over smaller, bolt-on acquisitions. Rather, this question is an endorsement of investing resources in deals that create material value for the buyer's shareholders.
Do we have an integration plan and the talent to execute the plan? It is one thing to know how, how much, and when value should be created; it is another to achieve value creation. The detailed integration plan and the talent to execute it should be in place at deal closing. Buyers should be realistic about the quantity and quality of talent that will be necessary to achieve a successful acquisition integration that delivers synergies while keeping the pre-acquisition businesses of both buyer and target running smoothly.
Do we have a clear, easy to communicate, rationale for the acquisition that important stakeholders will understand and support? There are many stakeholders in an acquisition – investors, boards of directors, management teams, regulators, creditors, employees, customers, financial analysts, media, suppliers – several of whom can stall an acquisition or limit value creation should the acquisition proceed. The buyer should identify the most important stakeholders for a particular acquisition and have a rationale and method of communication that obtains sufficient stakeholder support.
In many business situations, the questions asked are as important, if not more important, than the answers given. This is particularly true in mergers and acquisitions, where many deals fail to create the desired shareholder value for buyers. Correctly done, M&A is a powerful tool that allows buyers to achieve growth, position themselves for the future, and create value for their shareholders.
Trout Creek Consulting’s Actionable Strategy and Immediate Impact Workshops can help clients ask and answer the right questions.