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Howeasyisittoacquireabusiness?Everybusinessleaderthinkstheyknowhowtobuyabusiness....
Only23%ofacquisitions earntheircostofcapital;
Targetcompanyexecutives:
▻ 47%leaveinthefirstyear,and
▻ 75%inthreeyears;
Forecastsynergiesmissed70%ofthetime;
One-thirdofacquisitions increaseshareholdervalue,one-thirddestroyvalue,
one-thirddon’tmeetexpectations; and,
Inthe4- 8monthsfollowingadeal,productivitycanfallbyupto50%.
....doyouforgettheacquisition,ortargetthehitrateandmethods
ofsuccessfulserialacquirers....
Source:PWC,Wharton,WatsonWyatt,TiptreeHouse.
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Who’sgoodatacquisition...Who’ssuccessfulthatyoucouldemulate:
Google?
Privateequity?
Newalta /Stericycle/....
Allsuccessfulbusinesses areacquisitivebut....
“Therearetoofewattractivetargetsandwekeepseeingthesamenames
andspendingtimereactingtodealsthatdon’tmakesense”
“Wecan’tgetthenumberstowork– thetargetsaretooexpensive”
“It’stooinconsistentanddealsendupdestroyingvalue”
Commonsuccesstraits– awillingnesstoinvest(aheadofanydeal)in:
thebasics(DD,therightadvisors&network,detailed integrationplans);
leadershiptime+money; and,
organisational focus.
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Good1. Acceleratemarketaccessforbuyer/seller’sproducts.
2. Secureskills/technologyfaster.
3. Pickwinnersearlyandhelpthemdevelop.
4. Roll-up/economiesofscale.
Bad(orjustdifficult)1. Consolidatetoremoveexcesscapacityorimprovecompetitivebehaviour.
2. Improvethetarget’sperformance.
3. Transformational.
4. Cheap/belowmarketvalue.
Ugly1. Increaserevenue/size/PEmultiple lift.
2. Trendy(.com).
Thegood,badandugly(akastrategicrationale)
Source:McKinsey/TiptreeHouse
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Successfullyintegrateabusiness
Realitycheck:
Therearenoquickwins→preparation+planning;
Definequalitativeandquantitativecriteria→ identifyrangeof
prospects/targets(it’stimeconsuming);
Ensureownhouseisinorder→ bewarereverseDD+thedayjob;
SellthesellerfromDay-1→ it’sarelationship,notacustodybattle;
Understandthemethodology→ systems+process+channels;
Lineuptheperseverance,patience+empathy;and
Thenewbusinessplanisajointenterprise(sortof).
Moreimportantthanthewilltowinisthewilltoprepare. CharlieMunger
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1. Failingtomakeaconvincingcasefortheacquisition;
2. Notdoingthemaths:does1+1=3?
3. Gettingemotionalorlosingperspective;
4. Ignoringredflags;
5. Thinkinginsidethebox;
6. Notputtingyourselfintheseller’sshoes;
7. Incentivising thewrongbehaviour.
Acquisitionpitfalls– behonest!
Sometimesyourbestinvestmentsaretheonesyoudon’tmake.DonaldTrump
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Therightcultureandincentives...
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1. Overlyfocusedonlegal/financialduediligence;
2. Unrealisticexpectations;
3. Failuretointegrateswiftly;
4. Lackofsharedvision,orconflictingcorporateculture;
5. Insufficientresourcesforintegration;
6. Assumingonesidehasmoretalentthantheother;and,
7. BeginningintegrationatCompletion.
Sevendeadlysinsofintegration
Priceiswhatyoupay,valueiswhatyouget.WarrenBuffet
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Integrationsensecheck
Doyou(really)havetheresources:
Managementelasticity:
Whoownstheprocess?
Whereisthesparecapacity?
Whatisthestrengthindepth?
Managementcapability:
Technicaltransactionskills– process,legal,financial;
Operationalskills– transformationalvsBAU;
Managingexpectations – buyer/seller/customers/financiers/advisers;
Culturalcombination– cuibono.
Expecttheunexpected– operationalreserves +principlesbased.
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Identifytherighttarget;
Commitresourcestotheintegrationprocessearly;
Actswiftly,notprecipitously,butcreatevelocity;
Recognisethecomplexityofintegration– developacampaign
approach;
Involvemanagersfrombothorganisations andtaketimeto
reallyunderstandthetargetorganisation;
Informcustomersassoonaspossiblepostcompletion.
Avoidingsomedeadlysins
You’vegottobeverycarefulifyoudon’tknowwhereyouaregoing,becauseyoumightnotgetthere.YogiBerra
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Resourceinvestm
ent
Pre- close Completion Integration
Slowstart
Emergentundiscoveredrisks
/issuesgeneratingre-work
Applyingintegrationresource(1)
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Resourceinvestm
ent
Pre- close Completion Integration
Slowstart
Emergentundiscoveredrisks
/issuescreatingre-work
Earlyinvestment&
contractadaption
Coastinghome
Applyingintegrationresource(2)
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AvoidingthesevendeadlysinsCreateameaningful communicationplan– nocontentfree
communication/bullsh*tbingo.
Proactivelybuildthenewteamculture.
?
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It’seasytosendthewrongmessage
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SirAlexFergusonandManUtd
26.5yearswithManchesterUnited,38trophies
Theclubhadareputationforplayersdrinkingandliving
the“playboy”lifestylewhenAlexFergusonarrived
SirAlexpaidattentiontoallissuesintheclub
Re-establisheddiscipline
Removedindividualswhodidnotdisplaythenorms
DavidMoyse– lasted10months,finished7th inPremier
Leagueandnow,LouisvanGaal?
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Knowledge:
10%ofanorganisation’sknowledgeisexplicit;
90%ofanorganisation’sknowledgeisimplicit;
Organisationsrarelycodifytheirtacitknowledge.
Whoaretheinfluencers– thequestionstoask:
Whoconductsyoursalaryappraisal?
Whodoyougotowhenthingsgowrong?
KnowledgeandOB
Astudyof190topexecutivesreportedthat:
“culturalincompatibility isconsistentlyratedasthegreatestbarriertosuccessfulintegrationbutthatresearchonculturalfactorsistheleastlikelytobedoneasanaspectofduediligence”Source:WatsonWyatt
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WhocareswhereWallyis?
x �
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Where’sWally?
x �
Youcanobservealotbyjustwatching.YogiBerra
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PerformingNormingStormingForming
Commitm
enttotheteamTeam
outpu
t-pe
rformance
Teamperformancepost-acquisition
Source:BruceTuckman
Time+£££
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BenAinslieandtheAmerica’sCup
Sep-13OracleTeamUSA8-1downintheseriesagainstNZ
Bolddecisiontosacktheexistingtactician
BenAinslieappointedtotakeover– impactafter tworaces
Theteamwonthenext8racestowintheAmerica’sCup
Oracleteam– 203people
SirRobinKnox-Johnston:
"TheAmericanswerebeatenuntilBenjoinedtheboat.”
”...there'snoquestionitwasBen'sarrivalwhichchangedthechemistrycompletely."
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Assembleagoodteam– relevantskillscan(andshould)
beboughtinearly.
Developaclearinvestmentthesis.
Bepatient, thenbebold.
Befrugal,butnotcheap.
Beginintegrationplanningfromtheoutset.
Shareholdervalueismoreimportantthanentryprice.
Conclusion
It’sbettertobuyagreatcompanyatafairprice,thanafaircompanyatagreatprice.WarrenBuffet
