Before pursuing an acquisition, or acquisitions, there are a number of factors to consider. Here's a good place to start.
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Company growth can be achieved in any number of ways, but one of the most effective methods can also be one of the more complicated. We’re talking – of course – about an acquisition.
In an analysis of 50 telecommunications, utility, and high-tech companies, McKinsey found that many large companies generate more than a third of their long-term growth through acquisitions. In a 2015 survey, McKinsey found that nearly two-thirds of underperforming companies lack the capabilities to integrate their acquisitions.
Before pursuing an acquisition, or acquisitions, there are a number of factors to consider. Talkin’ Cloud has gathered three questions that you should keep in mind when evaluating whether to you have the right framework in place to start pursuing M&A deals.
1. Does the Deal Support the Corporate Strategy?
This one probably seems very obvious, but it’s something that McKinsey says is one of the most often overlooked. According to McKinsey, many companies believe they are following an M&A strategy even if their deals are only generally related to their strategic direction.
McKinsey recommends that “those who advocate a deal should explicitly show, through a few targeted M&A themes, how it advances the growth strategy.”
“A specific deal should, for example, be linked to strategic goals, such as market share and the company’s ability to build a leading position,” McKinsey explains.
The most rewarded acquirers treat M&A as a tool to support strategy, not as a strategy in itself.
2. Do We Have Enough People?
According to McKinsey, not having the right number of people involved in M&A can result in a company buying the wrong assets, underinvesting in appropriate ones, or managing their integration efforts poorly.
McKinsey says that executives need to appoint key operational players, such as the deal owner and the integration manager, to ensure that it is successful long after the letter of intent is signed. Here are two key operational players and the role they play in an acquisition:
- Deal owner: High-performing managers or executives responsible for specific acquisitions; full or part-time; could be from business development team or line organization, depending on type of deal; involved early in the deal
- Integration manager: “Deal owner’s chief of staff”; chosen for skills as process managers; become involved as soon as target as identified but before negotiations begin
3. Am I Expecting Too Much from the Acquisition?
Often, companies that face declining margins or market share may look to acquire a better-performing competitor.
This strategy can be dangerous because it is “very difficult for an underperforming acquirer to improve its performance dramatically by acquiring a leading competitor and extracting its capabilities,” McKinsey says.
Making sure your goals are clear and realistic can go a long way in ensuring a successful acquisition.