8 Enablers Of Successful Acquisitions For Innovation And Growth
8 Enablers Of Successful Acquisitions For Innovation And Growth
The recent announcement about Google acquiring Fitbit and the history of Google’s acquisitions created some publicity about various acquisition failures and successes. Statistically the majority of deals fail to deliver their expected value both strategically as well as monetarily. There are many factors than can determine an acquisitions success or failure before and after the deal.
In this article we want to focus on the acquisition and integration of start-ups and scale-ups both large and medium size. The most of the failed acquisitions and integrations show one of the following characteristics:
1. Poor, opportunistic, and simplistic acquisitions:
M&A is full of assumptions and often numbers driven with attractive theoretical cases in spreadsheets. Companies often think that by buying a company different to their own will result in 1+1 = 2. A target company’s business or operating model, culture and strategy is often insufficiently understood resulting in a gross underestimation of the effort and change required to enable successful operation together as an integrated entity.
2. Integration Paralysis....
Adding a poor or over simplified acquisition strategy will result in ambiguity for employees of the parent company, the acquired company, and most importantly for customers. Integrations will either move into a paralysis and delay mode where decisions are delayed and avoided leading ultimately to more focus on differences instead of similarities. The longer this continues the more people will focus on differences creating an even bigger challenge to integrate.
3. “Post murder integration”...
The opposite extreme is that things will be implemented as fast as possible without really considering the impact implementation will have on the combined entity. Functions and operations will be “rammed” together and success will be dependent on the strengths of the parent company alone. The latter approach is extremely dangerous as the managers try to define strategy while integration happens. The chance for misalignment within the parent company is just as high as with the acquired company and value destruction is a very probably outcome.
4. Buying a start-up or scale-up does not help you become more like them...
Many established companies think that by buying a start-up or scale-up will help them become faster and more flexible. Start-ups and scale-ups (obviously) have different business challenges, objectives, operating models and decision lines.
In the case of Google’s most recent acquisition of Fitbit, Google is acquiring another vertically integrated wearable platform provider that develops both its own software and hardware. Google’s hardware division was behind the acquisition. Will they pull Fitbit apart separating hardware from software? Or will they allow Fitbit to operate vertically as they did? If the latter is true, is Google flexible enough to change its own structure?
Before acquiring a start-up or scale-up future parent companies should assess if their own processes, systems, business model, culture and employees are flexible enough on their side to adapt their own ways of working to enable a smooth integration. After all above reasons of failure or caution the question arises what can we do to improve the chances of success (achieve the acquisition objectives). In TenX2 www.TenX2.com we have a lot of experiences with both established companies, start-ups, scale-ups as well as several mergers and acquisitions. Below we have a list of 8 enablers to increase the chances of success:
1. Understand why you are acquiring
Acquisition rationale must drive integration strategy especially when acquiring a company that is organized and operates with a different business or operating model than your own.
a. What is the primary rationale for making the acquisition?
b. What are the key initiatives needed to fulfill the value creation objectives?
c. Understand the Value Drivers of the NewCo and more importantly the receiving business unit/organization first; then translate this into a roadmap including key rationalizations (org structure, portfolio, operations, sales approach, R&D projects, etc).
2. Design of the integration strategy
Ideally this should be a joint exercise between the NewCo company leadership and the acquiring company, to come to a joint vision of the future and ensure that 1+1 becomes 3.
3. No two integrations are ever exactly the same…
Many people think integrating companies is like integrating machines…
“Plug it in and it will work...” integrating two companies means integrating two living breathing organisms. This should be planned and approach with caution...
4. Organizational set-up.
Position the acquired company optimally within the acquiring concern. E.g. the best way to position a start-up or scale-up is to let them operate independently till they are big enough to be able to be integrated if necessary. The start-up leadership is necessary to report directly to the CEO or other member of the senior management team and they need to maintain their own processes and metrics suitable for their business model. At the same time the strengths of the established company if relevant to support the start-ups or scale-up e.g. access to distribution channels or introduction to the right partners is many times valuable for success and needs to be deployed in a way that the unique business model and start-up or scale-up culture is preserved. This is many times difficult and that is why top management needs to be actively engaged.
5. Culture
The cultural differences are important and there is need for high level of sensitivity to differences. E.g. the start-ups or scale-ups have a very different culture than established companies in order to succeed. The ingredients of such culture include:
- Open minded culture
- They challenge themselves being connected with communities & crowd
- Embrace exponentially growing technologies + multiplication/convergence effects
- Embrace Autonomy and Speed
- Learn faster through experimentation and fast failure is encouraged as it is learning
6. Speed
Avoid to be slowed down within a big company and it is advised to negotiate in advance as much autonomy as possible because innovation cannot be done within an established company which protects the established core business model.
7. Focus on the customer
It reconciles differences and helps to rally the organization behind a common goal. Enables innovation and faster growth.
8. Its all about people and purpose
Success comes from people from both companies, not just good business plans or the right numbers. Understand that it is people who make the numbers happen. Inspire and focus people behind the bigger vision/purpose than themselves is key especially during the acquisition and integration period.
Karim Elmorsi is an experienced general manager with a background in mergers & acquisitions, post-merger integration, joint ventures, alliances, IT and supply chain management. He has managed and supported numerous deals large and small for multi-nationals and scale-ups as an advisor and for Royal Philips where he was one of the founding members of their Corporate New Venture Integration competence center. Karim is a Partner for TenX2 based in Amsterdam, The Netherlands.
Mike Mastroyiannis is Managing Partner of TenX2, Management & Executive Coach and Management Consultant for among others, Transformational Leadership, New Business Models and Exponential Growth. He has served as CEO of business units in Multinationals and founded or lead start-ups.
Any comments?
Thank you very much
NOVEMBER 8, 2019