Acquisition Rationale

Deal rationales for acquisitions are usually to acquire:

  • Customers – access to new customers and markets
  • Products – access to new products and services.
  • Capability/Diversification – access to new people, technology, IP, or distribution channels;
  • Defensive – to prevent a competitor from acquiring the business or key assets.
  • Synergies – arising from strengthened market position, cross-selling opportunities, and enhanced scale.

Acquisitions can bring their benefits quickly contrasting with organic growth which is “unproven” and needs to be earned.

Financial acquisitions  Objectives are cost reduction, tight financial control, disposal of poor performing businesses.

Success factors are: Imposition of management, financial reporting requirements, and speed of change < 100 days.

Geographic acquisitions – Objective to expand the core business into new geographies.

Success factors are: Clear understanding of deal rationale, similarity of the target, and ability to “reward appropriate behaviour”.

Symbiotic acquisitions – Objective to integrate skills and products within a portfolio or distribution channel.

Success factors are: Careful planning, new organisational structure, culture management, effective combinations.

Absorption acquisitions – Objective to merge two similar businesses but has greatest potential for problems as ALL aspects of target and acquirer are generally “up for” review.

Success factors are: Financial objectives, understanding similarities, appointment of integration team, integration of plan, choice of management, speed, swift implementation of new organisational and reporting structure, communication. Stay focussed on the customer – keep everyone externally focussed

Acquisition risk factors: Leadership that doesn’t want to grasp the big issues. Drifting – not grasping the thorny issues quickly and making the big decisions. Culture clashes are one of the biggest risks – which start with a failure to map the cultures of the two organisations and agree how the new combined business should operate.

Excerpt taken from Conquering M&A by James Dow available to purchase from Amazon here.

Acquisition Rationale

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