I had an interesting conversation with an associate of mine involved in Merger and Acquisition activities. We talked about the different buying trends he saw in the last year. He shared that he is seeing an increase in buying activity in the markets he serves. He pointed out there is more money and higher quality buyers in the market today than in past years. Many want to grow their business through mergers and acquisitions. He asked me if I had seen much of a change in my business over the last year. What I told him may also impact your business, so I thought it might be helpful to pass it along to you.
I’ve noticed four primary buying trends with my better clients when they acquire businesses. The first of the buying trends is they are looking more closely at the management team before they make a buying decision. Is the leadership team also good managers? Do all the leadership team members have a solid handle on what they do well? Are they developing future capabilities for growth? In the past, my strategic buyers had a good handle on future opportunities before they bought an organization. The emergence of many smaller market segments make it almost impossible to keep up with all the changes within emerging markets. Anyone buying an organization wants to better understand future possibilities before investing their money. In many cases, I’m seeing initial deals structured as JVs and strategic alliances as a way of better understanding the organizations involved. It makes sense to reduce risk while increasing knowledge of new markets through this new acquisition strategy.
The second of the buying trends is noting how engaged the employees are within the organizations they are buying. My clients are spending more time understanding the culture within the organizations they buy. In many cases in the past, my CEO clients were more concerned with financial results and missed the culture piece completely. In the past, organizations were evaluated by the strength of the founder and technology. Today, I’m being tasked with evaluating the key teams and capabilities within the organization. Many of these clients have learned some painful lessons by ignoring the issue of corporate culture and execution.
In many emerging technology businesses, the employees are becoming more valuable than the initial technology they created. Are they a one hit wonder or do they have a strong technology roadmap complemented with the capabilities required to create a portfolio of breakthrough technologies? These clients are spending more time on due diligence trying to evaluate how this new company fits into their organization’s culture. In several acquisitions they have kept the new organization separate from the acquiring organization. They want their acquisitions to remain agile and entrepreneurial. Ongoing product innovation is becoming more critical to organizational long term success and growth. This means the way they decide what to invest to buy the business has changed.
The third of the buying trends is determining how ready the organization is to execute on a larger scale. Many smaller organizations have troubles scaling their business, not because of financial resources, but because of a lack of employee capacities to execute. Weak business systems or recruiting failure can stall many potentially great businesses. Can they attract the right people to the organization as its capabilities continue to change? Shorter product adoption cycles increase the speed of effective implementation time required for the product to become a market leader. Buyers want to know that they can take advantage of new market opportunities more quickly. This means empowering their managers to build team strengths by investing more to build capabilities and retention among their key team members.
With over 60% of employees feeling disconnected from their managers and their organizations, we may be entering a new era of employment. Organizations need to reconnect and empower their teams to continue growing. How have these smaller organizations empowered their managers to retain and attract key people to their teams?
The fourth of the buying trends is mitigating increasing risk in sales and business development activities in target organizations. Many acquisitions have failed because of the lack of ability to accurately assess risk throughout the selling process. I’ve seen increased activity from client CFOs to try to accurately evaluate the acquired organization’s sales funnel.
Over the next several weeks we’ll discuss strategies to help you deal with these trends. We will share examples that will help you see how you might leverage these trends to increase the value of your business today and in the future. See you here next week.