Imagine that you are the CEO of an $80 million a year manufacturing company, operating from a single location. An enticing opportunity falls in your lap: you can acquire a $50 million division of a large, publicly held company along with two plants. Your company could become a $130m business with three factories. Would you go for it? If the probability of failure was 70%, would you attempt it? If the cost of failure could be in the millions, would you risk it?
This decision gets made every day: companies acquire other companies, expecting a great result. But, the data shows a failure rate of 70 – 90%.
Reese Bourgeois beats the odds . . . over and over again! His team at Flow Consulting have helped corporations succeed in every single one of their mergers. I wanted to find out how, so we sat down to talk:
- Tell me about Flow’s work helping clients acquire and merge other businesses. We’ve been advising clients on M&A integrations for 15-years. Currently, we have 15 clients who are serial acquirers. We help with pre-transaction due-diligence, writing the integration plan & also with executing the plan. Our scope is enterprise-wide, from organization structure to information systems to plant operations to supply chain. Our clients achieved their expectations in every one of their acquisitions, despite significant hiccups, which are inevitable.
- What does it take for a company to succeed in growth by acquisition? You need capacity at the senior management level. Too often we see leadership teams that are incapable of leading the integration after an acquisition. It’s not that they aren’t smart or hard working, it’s because they haven’t invested in the capacity of their leadership team to not only successfully run the current company, but also the combined entity.
For certain, they also need specific skills. I look for at least some of the leaders to have experience running a business the size of the combined entity, and for some to have integration experience in their backgrounds. It’s skill along with depth of management. All this requires an investment of time & money.
3. What mistakes could be avoided? Don’t underwhelm the integration. You need a dedicated person with good project management skills to lead the team. A successful integration will pay for that person many times over. The cost of a failed integration can be customer orders not delivered, or not even being able to take an order from a customer. That’s the potential result if you underwhelm the task.
It seems like everybody is scrambling for growth by acquisition. Large corporations are flush with cash, yet can’t find worthy investments to spend it on within their own businesses. Private equity funds have raised mountains of money for investment. All this demand for acquisitions has revved up the M&A market. Last year was an all time high in corporate mergers, spending a whopping $3.8 trillion. Nearly 60% of CEOs plan to carry out a deal in the next 12-months. Yet, the facts show that M&A usually kills value. Reese’s thoughtful advice can keep you from becoming a statistic.