Acquisition is often the best way for a company to expand quickly and consolidate its position in the market, but it's not easy: corporate history is littered with failed M&A, proving that it's far easier to identify an attractive target than it is to pull off a successful deal.
FTSE 100 software giant Sage is a shining example of what a fruitful M&A strategy looks like. In 1996 it was turning over £100m; by 2016, following a decade of rapid acquisition-fuelled growth, it was posting revenues of over £1.6bn.
In his 15 years as Northern Europe CEO, Paul Stobart (now CEO of broadband provider Zen) was involved in over 100 of these deals. He explains why the company’s strategy was so effective.
"We made sure that we built relationships with potential targets sometimes years in advance of actually doing the deal.
"For example, in the case of our beachhead acquisition on the US West Coast, we had known them for six years before the deal was done. We met them regularly at conferences, met for dinner and had regular chats.
"We were direct competitors in many ways, but that didn't stop us having conversations and building the relationship so that when it came to the time that they wanted to sell, we were ready.
"It was transparent from the start that we wanted to buy them. But it was more subtle than us saying 'you're a target'.
"Instead it was a case of letting them know that we were incredibly impressed with their business and hinting that if they did want to sell - whenever that would be - we were around. But in the meantime we would continue to share ideas with them.
"Because we nurtured the relationship, they understood what Sage was as a business, what the strategy was and who we were as people. We weren’t a faceless organisation looking to get the deal done as quickly as possible and they could trust us.
"This isn't to say that approach worked every time, but if it didn't work out it was usually more to do with a sectoral issue rather than a specific people issue."
FOR MORE INFORMATION
Here the CEO of FTSE 250 engineering firm Spirax Sarco outlines his golden rule to a successful M&A strategy. Likewise, Carlsberg's former SVP explains the intricacies of integrating acquisitions with different cultures.
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