CEOs must be visionary but they have to be operationally pragmatic. Jim Collins captured this so well in his series of books, specifically with the phrase zooming in and zooming out. I like the metaphor, you can’t afford to miss the bend in the road by looking just in front of the car, however you still have to drive the car, steer, brake and do important operational stuff (check out my post Why a Great Strategy isn’t Enough).
Enter the tricky problem of M & A success. What does the research tell us? We’re hopeless at it! Well to be specific, it’s the post acquisition integration piece that’s key to success, not price (Cass Business School).
Having been immersed in M & A as an investment banker (focused on sub $200m companies), and a board member and operator within public companies acquiring and integrating private companies for the last 30 years – here is my diagnosis and solution.
The Communication Nightmare
The CEO after much soul searching and analysis with his team, signs off a strategic plan. This plan will inform everything including positioning, recruitment, marketing strategy, sales focus and customer service. It will determine the acquisition strategy.
The success of acquiring and integrating targets based on this strategy will depend on two huge elements of communication and a process to execute it.
The two elements: how well the CEO articulates his strategy to the corporate development team and therefore relevant targets and secondly, how well the corporate development team works with the profit champions to assess, structure and integrate the target.
This umbilical cord running from the CEO to corporate development to profit champion struggles to be established. Communication breaks down and the following happens:
- Companies are acquired that are for sale but not a strategic fit. Over time the group grows in size but lacks direction and ultimately leads to decline.
- Profit champions with very rare domain knowledge are not involved in the crucial assessment stage of early courtship with the target, leading to missed issues and in the worst case, disastrous integration plans.
- The Due Diligence team does not understand the narrative between strategy and a specific target and are therefore have no context to validate the post acquisition strategy. Important issues are missed which come back to haunt the integration teams post completion.
It does not have to be this way. Here are the building blocks to build a world-class M & A capability into your business:
Building Blocks To Solve the Communication Nightmare
- The Strategic Plan produces an Acquisition Profile (shopping list of characteristics you desire) that is aligned to your skills, your culture and of course your strategy.
- Assembling an acquisition team with corporate development skills and deep operational skills.
- Targets are prioritized by strategic fit and ease of integration with your culture and core values.
- Targets are approached with a credible story, a strategic direction, with empathy for what they’ve achieved. You are selling when you are buying, so what are you bringing to the party?
- As targets are investigated, your story to the target is clean, concise and makes sense. Equally as meetings progress, your internal team becomes more convinced that this target is a great strategic fit. The integration plan, which will always have its challenges, has credibility with the profit champions charged with making the deal a success.
- The due diligence team is briefed on firstly, the strategy of the deal, secondly the findings of the corporate development team and finally the post acquisition integration strategy. Now the due diligence team have context to do their work which should include validating the integration strategy.
- The final integration plan is reviewed and 30, 60, 90 day action plans are drafted that allows all parties to hit the ground running post completion avoiding procrastination and a communication vacuum.
Occasionally I present this material live – next session April 7th – details here.
The Portfolio Partnership (TPP) is building its Playbook into public and private companies, working with management teams, to ensure everyone is on the same page. The process demands that only targets aligned with the agreed strategy/story are brought to the table. And then only targets with a very strong integration fit are allowed to be advanced through the process.