The success of an acquisition is rarely down to the price you pay according to the research. First the research: Cass Business School, concluded from detailed research covering 12,339 deals including 2917 acquisitions of distressed companies from 1984 to 2008 that price was not the determining factor for success but that post acquisition integration was the key. So the research is really clear – post acquisition planning is critical. Remember it’s not like buying a house unless you buy the family that’s inside it!
Culture forms a big part of the post acquisition integration plan. Andrew Hill in the FT pointed out some great examples this week: HP acquiring Autonomy was a disaster, a total misfit of culture whereas Amazon’s acquisition of Zappos, allowing Tony Hsieh to maintain the distinctive culture at Zappos would appear to have been a great success. So how are you going to approach the culture problem? Here are a few tips to guide you:
- In due diligence try to really understand how the target company operates day to day. How they forecast their sales pipeline, win business, hold meetings, and reward staff. Try to imagine how your culture would operate within this business. Is there a mismatch? Maybe you need to walk away.
- Don’t be blind to a better way of doing things. The target might have a better, slicker sales proces, forecasting system, a better hiring machine, a better new product development team. Ask yourself, how am I going to protect the good stuff that I want to nurture under my ownership?
- Owners leave businesses they sell. Why does that need to be the case. Over the last 14 years or so Google have been a prolific acquirer. Their batting average? Approximately 67% of CEOs stay after the acquisition. Google clearly think through how to keep the ex-owner motivated and I suspect they worry about the cultural fit more than most.
- Treat every acquisition on a case by case basis. Don’t have a one size fits all approach to integration. Some acquisitions might be a technology grab, saving you years of development. You clearly would approach cultural integration on that deal differently from the acquisition of a consultancy business.
- It might make sense to have an earn-out form part of the deal structure. This will limit your ability to fully integrate the target but you are trading that off with the advantages of the earn-out structure. Often the rules of the earn-out will prevent the acquirer from materially changing the way the target is run and certainly indirectly the culture within the target.
- When you are buying you are selling. Don’t miss opportunities as an acquirer to switch on the target’s senior management to your brand, your success, your ability to develop talent. Remember the research on why people come to work: (These are things acquirer’s can be really good at but often are silent on.)
- Autonomy, the ability and freedom to own and do their job.
- Mastery, understand that people want to get better at what they do.
- Purpose, staff want to understand how their role fits into the big picture
- Culture is the corollary of a set of actions. You can’t execute culture. You can continually hire and fire people and that will create a certain culture. You can continually pay exorbitant bonuses and that will create a certain culture. As a leadership team you can act with professionalism, honesty, clarity and that will also create a certain type of culture. Your choice.
Don’t be naive about culture. In the context of acquisitions it will be crucial to every type of integration plan but diagnose each situation on its merits and be prepared to walk away if the cultural fit looks weak.
The Portfolio Partnership designs and executes acquisition strategies as part of an overall plan to scale businesses aggressively but safely. Read about how we partner with acquirers here. We offer some great guidance on acquisitions throughout our 500 plus blog posts. Use the search box to find your issue.