Acquisition can be a powerful tool to achieve growth, expand the range of a firm’s capabilities and enter new markets – so it’s important to anticipate the right moment to act. While acquisitions are a fast way to broaden a company’s product portfolio and boost the overall scale of their operations, the competitive nature of the market and hefty price tag of acquisitions means they carry a risk. All too often, transactions fail to create shareholder return. In order to create value, then, it is crucial that the capital of the combined businesses is greater than their individual wealth prior to the acquisition. In this way, the acquirer’s shareholders will gain value, provided the cost of the acquisition is correctly negotiated.
A recent Harvard Business Review report states that mergers and acquisitions (M&A) typically suffer a failure rate of between 70 and 90 per cent, proving that acquisitions are a high-risk activity and difficult to get right. The challenge to the acquiring business is to recognise the key factors for a successful takeover. Not only is the timing imperative but selecting an acquisition target that shares your customers’ needs and features complementary capabilities while remaining distinctive in the market is more likely to foster a successful future down the line.
Earlier this year Atalian and Servest merged to create Atalian Servest. The result is an organisation that has vast amounts of experience with acquisitions and remains highly acquisitive. But what can its success teach the wider market?
Acquisitions fail for many reasons but, generally, their fate is determined by how well the integration and transition plan is executed. At Atalian Servest, before embarking on acquisitions, we always ensure that we have a clearly defined strategy that considers the intended outcomes and forecasts the potential risks. If an acquisition begins with the right vision and is executed at the right price, the value of the partnership to shareholders will be enhanced. In contrast, if an acquisition begins with the wrong vision and is executed at the wrong price, shareholder value runs the risk of taking a heavy hit.
It is a misconception that businesses in the same industry will automatically share similar cultures and can be easily integrated. A mutual respect for how each business operated prior to an acquisition can act as a strong base from which to select the most effective elements from each company and create a robust strategy that will reap benefits without negatively impacting the company’s operational complexity.
Essential to ensuring the success of an acquisition is discipline. It is critical to continually question how the acquisition will benefit customers while maintaining a loyalty to your fundamental competencies and assessing whether the acquired business aligns with your overall business strategy.
Stakeholders should assess where intervention is necessary. Parent companies tend to try to fix what isn’t broken. If a business has been identified as a suitable acquisition target, it must hold value. So, with a degree of trust and encouragement, it should thrive. The qualities that made it an appealing target initially should be nurtured and developed and form the base upon which the growth strategy for that branch of the business is built.
Customers are the key to success – without customers, your business will not succeed. Both businesses involved in an acquisition must keep their customers a priority. Communication drowns out any rumours and negative assumptions that may be lingering around the acquisition. Positive messages and reassurance, partnered with a consistent, honest story is a starting point for guiding customers through the acquisition transition and instill confidence that the customer experience will not be altered. Resources such as regional management frameworks, a centralised purchasing department and a greater business development team can enhance operations of the acquired company, leading to all-round better delivery to customers while increasing revenue and decreasing costs.
If an acquisition has been calculated correctly, the manoeuvre can present a transformational boost to a business that will elevate its operations to a whole new arena of business.