Small Business Success | Small Business Mentoring

By Ian D Smith

Acquisitions just don’t work. Research over the last 20 years has concluded that somewhere between 50% to 85% of acquisitions fail in the eyes of the acquirer! Do you have a process map for buying companies? Here is a six phase process that will improve the odds in favor of successful acquisitions — The Acquisitions Approvals Model.

Phase 1: Strategy: An acquisition is only one type of method to execute your strategy. If the strategy is flawed, the acquisition is flawed. What expertise do you bring to the party? Laidlaw, the largest school-bus operator in North America bought heavily into the ambulance business in the 1990s. Ambulances are not transport businesses they are medical businesses. Big mistake. The failure doesn’t start at the completion of the deal. It starts with weak strategic thinking. Output to this phase, is a description of the poster child target list –The Acquisition Profile. Not names, characteristics of attractive targets.

Phase 2: Identify Targets: Create deal flow. Ensure you are only reviewing targets that fit your Acquisition Profile. Buy companies you want to buy whether they are on the market or not! Draw up your short list of target companies and prepare your one page summary on each on how you would integrate them.

Phase 3: Assessment of Target & Value: Test your assumptions in the real world. Doing your homework, preparing thoroughly for your initial contact is crucial. Don’t offend people. Approach targets with knowledge. It involves carefully gathering facts and figures that will allow you to perceive value and build a case for a potential bid.

Phase 4: Negotiate Price & Structure: Preparation invested in phases 1 to 3, ensures the stressful phase of negotiating a deal becomes much more enjoyable and relaxed. Establish the target’s aspiration on price and have a clear business case on the perceived value of owning the target. Fine tune the post-acquisition plan as facts are uncovered. Draw up a document that summarizes the deal. Craft it in sufficient detail to allow lawyers to produce a comprehensive sale and purchase document. Don’t allow the lawyers to bottom the tricky issues!

Phase 5: Legal Completion: Due diligence and contract negotiation is key. Due diligence has many heads and although legal and accounting are standard, each deal will require additional expertise depending on the industry. Concentrate on issues key to the success of your post acquisition plan.

Phase 6: Post Completion: Recent research has confirmed what practiced successful acquirers have known for years: Learn from your mistakes. It’s the post-mortems you do after every deal that builds knowledge. (Research conducted 2008 by Heimeriks, Gates, Zollo, study of 101 companies worldwide). Of course the key is also to execute your post acquisition plan with skill ensuring that milestones are met.

Summary: Remember to ask at the end of each phase, do I want to continue? It is better to exit gracefully early in the process than complete a deal you regret for years to come. Good luck.

Ian Smith
As an experienced business leader, Ian Smith is passionate about maximizing the potential of fast-growing companies. Over the years, he has come face to face with the wide range of operational and strategic issues, and relishes the challenge of transforming sluggish or outmoded business models into robust product road maps, effective marketing campaigns and successful sales programs. He has been described as “the glue between an organization’s founding vision and its marketing and sales.”

Strategic business advisor, a Scot and world class masters athlete, Smith has covered a lot of ground in his nearly three decades in global business. Originally trained as an accountant in Glasgow, he has logged many miles as a finance director, a venture capitalist, an investment banker and successful CEO of a US based software group.

He has witnessed the life-cycle of a wide variety of companies, both large and small. Says Smith, “ambitious companies start life with passion and big ideas but often fail to realize their full potential”. This lack of success is often avoidable but it takes innovative thinking and impeccable execution. Using his unique portfolio of operational and executive experience; Smith partners with leadership teams to execute their vision. Each case is different. Support can take many forms but usually draws on his portfolio of experiences covering restructuring, acquisitions and sales leadership.

http://portfoliopartnership.com/index.html

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