Build Your Own Acquisition Factory

In his recent blog Hans van Nes discusses the pros and cons of the campus company. Generally speaking Mergers and Acquisitions (M&A) are a favorite growth strategy, if management perceives the organic growth rate to be to slow. As everything in business M&A definitely is a risk. 50% of the deals are considered to be a failure! How can we reduce this risk?

M&A provide many advantages. To mention a few: Fast growth of turnover and profit, fast increase of the market impact, and mitigation business risks. However, because 50% of the deals fail, it is worthwhile to ask ourselves the question what we can do to keep the advantages of M&A, and reduce the failure rate.

3 Different M&A Strategies

In a recent report, Build Your Own Acquisition Factory, AT Kearney mentions 3 different M&A strategies:

1. Traditional
2. Buy and build
3. The acquisition factory

Traditional means just select the company, buy it, and integrate it. Buy and build is a mix of organic growth and buying several larger companies. Once bought integrate them, and profit from the larger scale and the improved market drive. In an acquisition factory you buy 10 year long small companies through a large number of small deals through a specialized department.

Obviously the risks in the last situation are small, and you need a specialized department to perform the selection, buying and integration.

Acquisition Factory Success Rules

The acquisition factory has a few simple success rules, which might also be usable in other situations:

• Leverage the relatively lower enterprise value of smaller companies (also low compared to the sum of the multiple enterprises)
• Focus the acquired business on the core business model even if that leads to a limited loss of revenue
• Improve performance throughout the acquired company in all functions, particularly by leveraging scale and centralizing most overhead functions as well as by leveraging best practices in the other functions

How Does Your Next M&A Looks Like?

If your goal is far away, or if the road to travel for reaching your goal is full of risks, it always pays off to take small consistent steps, one step at the time. It also pays of with M&A!

We value your input. What are your experiences with M&A? Let us discuss! Contact Hans Lodder!