Unfortunately, human nature and our general "busyness" dictates there are more cures sold than preventive measures taken. Whilst we have our head down like a worker bee, making ourselves busy, it is easy to forget to look up, ahead and plan.
Prevention is always a better alternative than cure but look at data security. How much money changes hands after there has been a disaster? How many gym memberships are sold once the person has already put on weight? How many health foods, potions and lotions are sold to people who have already had a health scare? How many security home alarm systems are sold to people once they have already had their home burgled?
Over 50% of acquisitions in our sector fail to reach their business objectives because they do not take the necessary actions in advance to increase their likelihood of success. Yet time and time again companies enter their acquisition journey poorly prepared. The result is that acquisition success has worse odds than flipping a coin, yet often costs millions to undertake.
The true failure rate is probably closer to 70% but due to many companies not having clear goals there is nothing to compare the results against. Often, goals are allowed to drift during M&A activity, as companies behave in an opportunistic manner, shoehorning requirements in an effort to save time, save costs, “bag a bargain” or just so that they can show some results for all their management time and effort as their team becomes more and more frustrated while the process drags on and on….…….
Stephen Covey’s advice in his book, “The 7 Habits of Highly Successful People”, was: Number One: “Begin with the end in mind”. This is a great first step in the all important FORMULATE stage of any M&A activity. (The 5 stages in an acquisition are Formulate, Locate, Investigate, Negotiate, Integrate)
Beginning with a clearly defined objective and goals will aid thinking and help to keep yourself and team members on track when discussions start to become complex. It is so easy to become embroiled in the detail, counting the grains of sand, that you lose sight of the bigger picture that should be giving you direction in everything you do. In order to achieve a goal a person must know where they are going.
If I was to list the 7 habits of highly successful acquisitions, then I would probably write a book around the following tenets:
- “Begin with the end in mind” – I hope Stephen Covey would excuse me on this one but it is so important. Know your acquisition outcome from the start. What should acquisition achieve for you.
- “Ensure you have a clear understanding of who and what you are” – this is the who and what type of company you are currently. Where are your strengths? What is your current positioning and what is your value proposition?
- “Have a true and clear view of your competition” – if you are planning an acquisition, this is no time to overstate your strengths with a ‘Pollyanna’ view of your world
- “Have an M&A strategy that fits with your business plan” – surely you would say this is common sense? I would agree, but having an M&A strategy really fit the company’s business plan is not as common as you may think.
- “Create a set of SMART acquisition objectives” - be Specific; make them Measurable, Agreed upon within your team, Realistic and within a Time-frame.
- “Acquire with the insurance of knowledge and experience” – many acquisitions fail because they try to operate in areas that they do not know well or where they have insufficient data or expertise.
- “Don’t suffer from a keyhole vision” – ensure that you have a clear and unobstructed view of the businesses that operate in the sector in which you intend to acquire. So many acquisitions set out in pursuit of a few known competitors and then try to shoehorn them to make them fit. You need to have a good overview of the possibilities so you get the “Right Fit”