Before we acquire anything we seem to be infatuated with the past. Cars, houses, talent, and companies – the big items in life!
Now don’t get me wrong, it is important to understand the history and to validate it. Think about it. Take cars. Depending whether it’s a new one or a reasonable second version we probably consider: the historical performance of the car, (understandably we might wonder if that German car is as green as it claims), who owned it before, the historical crash test performance, previous experience with that dealership, the running costs the last time you bought this brand. Now clearly these issues should concern you. But what about the future? Where will you be driving the car, what distances will you be driving, what will the driving position feel like.
Take talent, we rightly want to understand the historical resume but are we really testing for the likely performance required from the job going forward? Take houses, are we really thinking through the hassle of not being able to park every single day, next to our new Seaport condo? Are we primarily looking backwards and not forwards?
Possibly the biggest acquisition of all – the acquisition of a business, follows the same habit. We spend a disproportionate amount of time worrying about the past. This ignores the tsunami of evidence, that acquisition success is dependent on post acquisition integration. How you imagine life moving forward is key.
So here is the issue to consider – are you focusing all your efforts on validating the past? Are you auditing the financial statements, the inventory, accounting records, HR records, capital structure etc. at the expense of validating the future? Are you validating your post acquisition integration plan? We need to assess acquisition targets from the first meeting onwards using a simple paradigm – how will the target fit into our group? Not in the round but in painful, myopic detail. When you’re a smart acquirer, looking forward, these are the types of questions you need answers to:
Looking Forward Questions:
- Why do the owners really want to stay? e.g. attractive earn-out, bigger role, access to capital to scale.
- Why will all key customers come across with the deal and will they find the buyer acceptable?
- Are there conflicts of interest between the seller’s customer list and the buyer’s list?
- Is the equipment deployed in the business sustainable or will the buyer have to spend a fortune going forward?
- Does the seller’s financial routines allow for seamless integration with the buyers reporting requirements?
- Can we sell the seller’s products through our distribution network (and if relevant can we sell our products through the seller’s network)?
- Do we understand how we will integrate the differing sales commission plans between both sides?
- Do we understand the commercial salaries including bonuses the sellers and the key managers post completion would find acceptable?
- Are the rules surrounding the earn-out practical and will they allow the buyer to manage the business as if they own it, which they will?
- Do we have in place a motivational business plan including monthly cash flow forecasts that we can support?
Without a playbook that contains measured strategic objectives, rigorous processes, collaboration, smart checklists, intelligent project management software and a post acquisition mindset, the wrong deals will happen. Teams will continue to take targets, way too far down the road and sadly some terribly incongruous partners will get married, leading to tears before bedtime!