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Acquisitions: When They Work and When They Fail

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During my career, I have been a part of a number of acquisitions.

Some were successful while most were failures. Below is my take on both of these scenarios with some suggestions on how to avoid the negative and enhance the positive side.

Reasons to do an acquisition

Here are some good reasons why acquisitions should occur that set the stage for success.

  1. Gain access to new products or technologies.
  2. Add geographical markets currently not being served.
  3. Product cost advantages.
  4. Added verticals (greater control of supply chain and distribution channels).
  5. Adding capacity (Manufacturing and supply chain).
  6. Market consolidation/Scale (Usually adds pricing power).
  7. New market entry.
  8. Brand.
  9. People.

Note that gaining market share is not on the list of reasons. The same reasons the acquirer is not getting share now will exist after trying to acquire it. The vacuum created by the acquisition will be filled by another competitor, the justification for acquisition to begin with will be lost, and enterprise value destroyed. Rigorous pushback should occur by leadership when such an acquisition is being proposed.

If the acquisition is being done for reasons 1-9 above, failure could still result. This is typically the case when there is either a poorly detailed and disciplined integration plan and/or one that not well executed.

Reasons acquisitions fail

When acquisitions fail, it’s usually for one of the following reasons.

  1. Pay too much (biggest reason for failure).
  2. Done for personal reasons (CEO wants to run a bigger company).
  3. Buying market share.
  4. Synergies over-state, unattainable, not delivered.
  5. Data/assumptions driving decision are incorrect.
  6. Culture of companies are not in sync.
  7. Poor integration plan.
  8. Poor execution of integration plan.
  9. Loss of key people in company being acquired.
  10. Inadequate due diligence (financial & operational) leading to unpleasant surprises.

If your board or executive committee is considering an acquisition, the first question to be asked is “Why can’t we build it ourselves?”

If that is answered satisfactorily, make sure that the above 10 reasons for failure are answered or well managed before going ahead.

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