Over 60% of the CXO level leaders I interviewed and talked with over the past 90 days have told me they plan to make acquisitions in the next 12 months. I believe this number could be even higher for midmarket organizations looking to grow their business in 2016. The more startling number I would share is from Bloomberg’s M&A Advisory League tables for 2012, over 97% of these will be under 500 million dollars in value. You will never hear about many of these deals unless you are competing in their markets.
It’s estimated that there’s a 77% failure rate on these competed acquisition deals. Failure means that the acquiring company management does not feel they got the ROI they expected on these deals. So why such a huge failure rate among midmarket dealmakers? My experience is that many of these organizations do not have a successful acquisition and integration process in place to support their acquisitions.
We can help increase this success rate by sharing several ideas that you can implement to increase the likelihood of success in your upcoming acquisitions. I’ve been involved in over 70 acquisition and integration projects in my career. I have an over 75% success rate on these deals. Three out of four may not sound very good, but realize I’m three times more effective at helping clients get the intended ROI out of their deal than they are. This margin can mean the life or death of the organization that’s making that’s purchase.
I could increase this number significantly if I was more involved earlier in the acquisition process. Many times I’m brought in after the acquisition Go decision has been made. It’s my job to help look at the deal for potential fatal flaws in the acquisition target. During this phase many of my clients are all in. Their senior team has approved the deal. Many times they are getting ready to announce the deal.
So you might say, “I’m good at making great deals. I don’t need a consultant to help me through the process. Sure I’ve had some problems, it’s not my fault. How was I to know that the company’s competitor was getting ready to disrupt the way they offer products in their market?” Or it could be that their best sales professional is leaving and taking a large portion of their clients with them. My personal favorite is when a company’s best clients’ agreements have a clause in them stating if the supplier is bought, all long term contracts are open to renegotiation at the customer’s request.
All of these potential problems have one thing in common. They revolve around people in the acquiring organization. Many companies’ failures stem from the fact that the founder or entrepreneur wasn’t ever planning to sell their organization, till they did. Many times, the most important parts of the company’s long term growth strategy are still in the founder’s brain. The brain that has just decided to sell to the highest bidder. The brain that has been working 20 hour work days for several years. She’s ready to leave and she’s just hasn’t decided how quickly.
So how do you begin developing successful acquisition strategies for 2016? How do you structure it so you retain the value in the organization you just bought? Here’s the good news. Over the next several weeks and months we will be putting together a playbook that you can use to become even more successful at making business acquisitions. We will share ideas that can help you build your M&A capability. If you get good at this M&A process, you might be surprised at how addicting this way of growing your organization is. If you become good at these key acquisition capabilities, your organization’s growth will astound you.
Starting next week we will begin sharing an acquisition process that will help increase your success in M&A. Most of the most successful midmarket organizations are just beginning to see the opportunity successful acquisitions can provide their organization to increase revenue and market share.
See you next week when we talk about the most critical element in your success. We will talk about developing the right mindset in the M&A process. I will help you better understand your deal making potential.
See you next week.