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Buying a turnaround? Have the right game plan to implement critical changes

Last Updated: Tuesday, 13 May 2008

By Tom McKaskill

Often, inherent capacities or capabilities just need fertile ground to flourish. Targeting a business that offers just that is a skill every acquirer needs to learn.

Perhaps the most effective form of acquisition is the turnaround. It is the untapped potential of an acquired business that often results in the highest return on the original investment.

Our acquisition literature tends to focus on mega-mergers with their inherent problems of culture clashes, systems integration and hard-to-reach synergies. The buy-and-fix scenario is a dream compared to merger nightmares.

Start your acquisition strategy with the questions “What do I do really well?” or “What do I have to offer that can make a substantial difference?” Work out what capabilities or capacities you have that can be applied to an acquisition. At the same time, you need to have a clear view of what you need to have in place in the acquired business for your contribution to make a difference.

This is the game that is played very successfully by private equity firms. They are not simply hunting around for cheap deals. What they are looking for are places where they can make a substantial difference by bringing something new to the table.

This might be new management, financial acumen, industry connections, funding or strategic buyers. They don’t want to simply improve the business marginally, they want to jump start it to a new level. Finding a match between what you have to offer and what a business needs to take it quickly to a new level is the key to success in the private equity sector.

There is no reason why a potential buyer can’t apply those same principles to an acquisition. Personally, I have always thought that it is difficult to achieve a healthy return on an acquisition investment by buying a firm to be bigger and thus gain economies of scale, or to take out overlapping costs. But if you can clearly bring a capability or capacity to the new business that dramatically changes its potential, then you have the basis of a very strong acquisition case.

With such an approach in mind, you need not limit yourself to cheap deals or optimistic purchases. Instead, focus on buying businesses that are well managed where you are not going to inherit a load of problems. Target those where you can make a substantial difference.

Basically, you are setting out to change the future of the acquired business where you exploit the new capabilities or capacities which you bring to the table.

These need not be overly dramatic. Often new energy, updated skills, personal networks and a different view of how the business can be better positioned can be sufficient.

Too many acquisitions fail to achieve positive results because they are made without proper appreciation of the post-acquisition work that needs to be done. By concentrating on how new value is created, by careful selection of the target business, and by ensuring you have a game plan to implement those critical changes, you can substantially improve your chances of success.

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.