Harvard Business Review, 2016
‘’M&A is a mug’s game’’, said Roger Martin in the Harvard Business Review magazine. He refers to the fact that 70% to 90% of the acquisitions fail. Acquisitions are a tempting strategy for rapid growth as an organization. In addition, it often gives the management a good feeling psychologically. But then you have to do it well. And how do you do that? Read about it in this blog ‘This way you ensure a successful acquisition’.
Why does it fail so often?
To begin with, it is good to look at why it fails so often. The answer to this is that organizations often look at the profit to be achieved. This can vary from access to a specific market to obtaining knowledge. Often it is not looked at what the organization can add to the company that is being acquired. You are probably not the only one who sees an opportunity when a company is offered for sale. The value of this opportunity is lost in a bid. The price goes up so that the payback time increases or may become impossible.
How does it work?
Find ways in which you can add value to the acquired organization instead of just making a profit out of it. Buyers tend to look only at what the company that is being acquired adds to their own organization and not look at what they have to offer to the acquired company. In fact, by ‘bringing’ you make the difference between a successful or failed takeover. There are different ways for this:
- Give the company growth capital
- Make sure they can focus better on their ambition
- Transfer one or more important competencies
- Share one or more important means of production
Give the company growth capital
As an organization, you can add a lot of value if you understand the company that you want to take over and the industry in which it operates. Creating value by investing only financial capital in the Netherlands is mainly done by so-called private equity funds. Their business model is to grow businesses through growth capital and good support.
For example, Euro in Nijverdal has been given the opportunity to invest in efficient production through capital, knowledge and management support from the investment company Wadinko.
Make sure they can focus better on their ambition
Another way to add value to a company is to ensure that employees can focus on their ambition within the company. How? By creating more insight and overview for all employees. Which direction do you want to take with the company? Which process policy is needed for this? Why are these changes needed to grow the organization?
Transfer one or more important competencies
It can also be very valuable to transfer specific, often functional, competencies to the other company.
A good example of this is the acquisition of TDC, EME-Engel and Tricas by ITMGroup. Through the acquisition, these companies bundled their knowledge and opportunities to become world leaders in the detergent sector. ITMGroup applied their technology and knowledge of the tobacco industry to a completely different industry. This made possible that a small player like EME-Engel is now a valuable supplier for multinationals in the detergent industry. And ITM is now the first ready-made supplier in this industry, because TDC adds its packaging technology to it. Tricas supports this by developing new, better and safer water-soluble capsules with detergent.
Share one or more important means of production
The fourth way to add value is to share one or more means of production with the company you take over. bpost shared important means of production of its own with De Buren. This allowed them to grow quickly at De Buren with their unmanned collection points in Belgium.
In this form of ‘giving’ it is important that you understand the underlying dynamics of the company that is being acquired and that the resources are actually shared with each other.
It is therefore important that you have a strong and clear strategy for an acquisition, even if the market does not ask for this. And even more important: what you add during this acquisition determines the value that comes out of it. This makes the difference between a successful or a failed takeover.
This way you ensure a successful acquisition. Want to know more about how to make an acquisition succesful? Read our 6 tips in this blog.