The business world is littered with acquisition failures. Get it right and you can take a quantum leap forward, but get it wrong and it can be an unmitigated disaster. Look at any firm in the technology sector that’s been successful – including Google, Apple or Microsoft – and you’ll find that none of them would have been able to get to where they are now without acquisitions, whether buying companies outright or purchasing their patents.
As the CEO of GCI, I’ve led a team behind five acquisitions in the last 16 months. It’s been a busy time but we’ve added hugely to our capability and become one of the largest privately owned Managed Service Providers in the UK with 500 staff and turnover approaching £100m. Hopefully some of the lessons we’ve learned will be useful for others.
Whether you’re buying for volume or capability, or just through opportunism, you need to be proactive. Maintain a constant list of companies to keep an eye on; with the right connections it’s often possible to make a move before the company becomes available on the open market and the price increases, or your competitors get there first.
It’s generally invaluable to have connections within the organisation you’re looking at - they’ll know if it’s growing at a high rate or the possible reason for a sale. Buy side advisors and other third parties can often be very useful too but select who you deal with carefully, as many are simply ‘churning the handle’ and not adding value.
All ambitious CEOs should be tightly aligned with their CFO on M&A – one opinion alone can be a flawed or biased. When you are calculating potential synergies make sure you are pragmatic –always forecast additional churn and zero sales growth into your calculations.
Set your criteria and stand your ground
Know as much as you possibly can before you go into your initial discussions. Set your criteria in advance and know your position, then build the relationship with the CEO, CFO, and chairman. Be straight with the people you’re dealing with.
In one acquisition we ran, we offered a number that we believed was fair and said we’d pay it without quibble (after financial due diligence criteria being met) provided the firm was taken off the market. It was a positive negotiation that closed the sale off to other competitors and we all knew where we stood. It’s not eBay – agree how much a business is worth to you and stick to that number.
Make the culture your culture
People often worry about the culture of the company they’re acquiring. In my view, it’s not a deal breaker; you’re buying a business and financially you will have projected that you can make it work. You’ll need to make your culture the new culture of the wider business. Of course, it might take some time to get there, but one firm should have one internal set of values with everyone pulling in the same direction.
Be honest with all employees from the start. Some will not be suited to your way of working, and if some staff need to leave tell them why - be direct but don't waver. The worst thing you can do is keep people hanging on; use your industry contacts to help them find a new role.
Consider all the stakeholders that you need to communicate with. Make sure there is an ‘all employees’ meeting within an hour of you walking through the door of your newly acquired company, and for those unable to attend in person or via a link, back this up with a video.
You could consider two versions - one specifically for the company being acquired which goes out to all employees, and another for customers. Do this just before it hits the press – let them hear from you first. Outline the value to them and what the enhanced organisation will bring to the table. Again, a video is a scalable way of doing this and more personable than just an email. It also means that everyone will get the CEO message undiluted, without additional opinion or rumours.
Post-acquisition it’s important to break down any silos as quickly as possible. Staff from both organisations should be encouraged to mix and go on secondment to other offices where appropriate – everyone is a peer now. Make software, tools, and facilities available to all from day one where possible. Use modern platforms like Skype for Business to collaborate, share info and network with colleagues.
To rebrand or not rebrand?
Should the new name appear above the door straightaway? Not necessarily; it can be overly disruptive and cause confusion with customers, and sometimes there are even legal reasons as to why it can’t happen immediately. Each firm needs to decide what is right for them, their staff and their customers.
For me, this is often something that needs to be worked out in the medium term after carrying out an in-depth listening exercise. Integrate sales first because whatever happens, you bought the business for financial reasons. Do not waver from the agreed synergy targets.
Ultimately what underpins the overall success of an acquisition is whether you paid what the business was worth to you. And did you listen hard enough to your market and what your customers told you they wanted? Did you communicate in the right way to the right people at the right time? These are all key factors to consider when judging whether you made the right call.
Adrian Thirkill is the CEO of managed services provider GCI.