Well enough? Leave alone
Tuesday, 15 April 2008
Last Updated: Monday, 14 April 2008
By Tom McKaskill
Change for change’s sake can be anathema to good business, especially when the business acquired is in good enough shape to be worth buying anyway.
One of the fundamental mistakes made by people who buy a business is to make changes to acquired firms that really do not add anything to the benefits received. Too often the buyer imposes a “one size fits all” approach to an acquired firm on the assumption that the only way to do business is their way.
Not only does this fail to appreciate that there may be processes that are superior in the acquired firm, but it risks disrupting business capabilities that were working well in the first place. Not everything has to be the same to create value!
There is a class of acquisitions where more benefits accrue when the acquired firm is left unchanged. When you consider the nature of strategic value, you often find that assets or capabilities can be passed from the seller to the buyer. So, for example, if we buy a business to take advantage of a brand, copyright, regulated rights, patents or a unique process, we may be able to transfer the use of such assets or capabilities without disturbing the acquired firm.
In fact, we may well wish the acquired firm to remain as it is, if it has the capability to improve the value of transferred items or to generate new ones that the buyer can subsequently take advantage of.
One of the assumptions that business executives often make is that M&A is about merging business activities. Not only are these types of acquisitions highly complex and fraught with risks, but they represent only a small part of overall acquisition activity.
If you want to reduce the risks associated with acquisitions, you should be looking at ways in which value can be extracted with little or no change to the acquired business. If you focus your attention on how value can be created by transferred strategic assets from the seller to the buyer, or from the buyer to the seller, you gain the benefits of value creation often without the costs and risks associated with merging business units.
Roll up strategies will often deliberately set out to find target businesses that need little or no change. By focusing on businesses that are well managed, have robust revenue and profit capabilities and require little external input, the consolidator gains the benefits of scale without the problems of putting many firms together.
A more advanced strategy would provide centrally held IP in the form of brands, improved performance setting and reporting systems and central specialist advisory services to improve overall profitability. Often these additional benefits to the acquired firm can be absorbed slowly over time, resulting in a smooth transition to additional value capture.
The focus in an acquisition strategy should be to zero in on the specific capability or capacity that the parent needs. If that can be acquired without disrupting on-going operations of the acquired firm, the benefits can be exploited with much less risk to both companies. Making changes that have little incremental effect on value generation makes little sense if they introduce risks of staff loss, business disruption and the delay of value exploitation.
Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the former Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia.
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