A popular strategy for business expansion is acquisition of similar companies – theoretically, this will easily lead to a larger market base, more product offerings, and a greater pool of industry knowledge.
Unfortunately, business acquisitions fail at incredible rates of around 70%, negatively affecting both the buying and selling companies involved.
There are several causes for this, many of which can be prevented by the careful buyer who follows a gradual merging strategy that respects the structure and vision of both the parent and acquired companies.
If you are considering merging with a company, keep these basic principles suitable for mergers of small, medium, and large companies in mind so that you don’t repeat some historical mistakes:
Many business owners get overly excited about the prospects of acquiring a new company, quickly seizing an opportunity for a company at a good price even if it does not align with their existing company’s overall strategy.
This can be a damning mistake. Even if you can acquire a healthy company for a good deal, if its marketing methods, customer base, and product line do not closely match up with your own, there is a good chance for failure.
No matter the industry, it is exceedingly difficult to merge company cultures with different foundational aspects like the market base and approach to customer service.
The Daimler-Benz acquisition of Chrysler failed largely due to historical strategy differences. Both companies were known for making good cars, but in the end their customers, markets, and products were too different to come together under one brand. Eventually, Daimler-Benz paid $650 million to get themselves out of the mess.
Many company owners believe that company culture is a created workplace reality that can easily change through concentrated top-down initiatives.
In reality, clashing company cultures is a common reason for merger failure. The manner in which a company has been historically managed, the way employees interact with customers, and basic company priorities are ingrained in a business to the point that no change is not only difficult, but highly undesired, especially in service-oriented industries.
Assuming that your existing company will be able to change a significantly different company culture automatically is simply wrong, and even planning strategically to change a company culture can easily fail.
When eBay purchased Skype, for example, it completely underestimated the difficulty it would have in merging the two companies’ various ways of customer service, technology usage, and company priorities, resulting in very little value added to the acquired products of Skype. Investigate the culture of the company up for acquisition – if does not closely align with your own company’s culture, find a better option.
Rushing into a merger can be one of the biggest mistakes you make, leading to a wide array of preventable errors. There is little reason to run full speed ahead into an acquisition.
Make sure you understand the buying or selling company inside and out – their history, their current state, and their future goals.
Again, don’t overlook aspects like strategy and company culture; if this information is not readily available, do not agree to a deal until you have completed enough investigations to feel confident that everything can be (relatively) seamlessly combined.
Experience shows that companies that do a thorough negotiation process have higher success rates than those that rush in. Quaker’s acquisition of Snapple provides a daunting example.
Unprepared for everything that was needed to make the merger a success due to a less than diligent investigative process, Quaker bought Snapple for $1.7 billion only to sell it twenty-seven months later for a mere $300 million. Patience pays.
Even if most mergers and acquisitions face serious difficult, following these tips can help you avoid disaster. Understand both your company and that under question inside and out before completing a deal, and don’t be afraid to look for more business merger and acquisition advice from professionals.
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