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Corp. Development

Five Areas to Bring Immediate Value to an Add-On Deal

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With add-on acquisitions at an all-time high, companies are often challenged in executing an effective integration plan. There’s always much talk of synergies and cost-savings overlaps, but frequently, little factual basis for identifying the best of what to keep and what to toss. Financials provide a good line of sight as do operational reviews, but are there other tools to use to accelerate integration and growth?

Add-ons are traditionally used for inorganic growth — an immediate infusion of revenue added onto an existing platform. Most often you’re buying market share or intellectual properties that help infuse the platform with an immediate infusion of cash — and sometimes, debt. The need to ramp up growth in the latter case puts extra stress on the organization to really build out a growth strategy.

Here are the top five areas to explore for growth to supplement the standard integration operational efficiencies.

  1. Know the brand. If you’re acquiring a brand, understand the value proposition of the brand within the market space before you determine if a rebranding strategy is appropriate. Too often companies acquire and rebrand, only to find that the brand they tossed had more loyalty and market presence than the new brand they chose to implement.
  2. Know the people. If you’re merging two different sales forces or customer service operations, identify which associates have the strongest and most compelling relationships before realigning staff. It’s important to know who the strongest players are on both sets of teams in order to replicate success from one organization to the other.
  3. Know the customers. If you’re buying market share, determine the degree of overlap between the two customer sets and pareto the top 20% of accounts that are driving 80% of the revenues of the new combined entity. Look at not only the revenue generation, but pareto the top 20% of products and services purchased that are driving the 80% of revenue. This requires a deep data-dive through both company portfolios.
  4. Understand the culture. Identify the cultural fit between the two companies. This is particularly important if one of the two is highly customer-centric, while the other has little understanding or appreciation of their own customers’ experience and the value it brings.
  5. Be fair and inclusive. Make sure the integration team is comprised of vested players from both companies. The integration process for acquisitive companies shouldn’t be a one-size-fits-all. Be fair and inclusive in your discovery and build towards consensus in your change-management approach.

All of these can be supported by a robust Voice of the Customer study — either before close or immediately after. One of our case studies illustrates the values clearly.

An Add-On Case Study of Success.

A highly acquisitive strategic had been on a fast-track of add-ons to build out its product portfolio and make a stronger grab for share. They identified a much smaller, but seemingly promising, company that they were preparing to pull into the mothership — enabling them to achieve immediate operational savings.

Before the close, Strategex was engaged to provide a Voice of the Customer study to determine the stability of the company’s customer relationships and growth opportunities, but more importantly also to identify if there were any under the radar issues that could impact the add-on thesis.

What we learned from the target company’s customer interviews was that not only was the company a promising one, it was a real gem. With a Net Promoter Score of 93%, it was one of the highest performing companies we had ever studied in our 25+ years of customer engagements.

The critical findings were eye-opening: not only were customers loyal, they were fanatics about what made the company great. They extolled the company’s product development, customer service, and customer-centricity. They raved about the educational tools and training that were part of the purchase value-chain, and the deeply-felt personal relationships that they had with staff associates who “always went above and beyond” what would be normally expected in business. They loved absolutely everything about the company — even to the point of telling our researchers more than once, “They don’t have any areas in need of improvement. They’re perfect!”

Needless to say, during our presentation to the strategic acquirer before the close, you could hear the high-fives in everyone’s voice. Then, reality set in. Within the presentation findings, there were huge areas for concern — the iceberg effect — voiced most pointedly by the head of acquisitions, “So, you’re telling us, when we acquire this one, not to screw it up?” Precisely.

The next day, our client called to ask that we make the same presentation to the integration team. His wise directive to the team, “We’re going to have to change our usual integration process in order to protect this asset. We’ll kill them, if we force them through our usual post-close hoops.”

To their credit and with the leadership of the head of acquisitions, the team enthusiastically took on the challenge. The deal closed successfully and importantly, both the integration team and the newly acquired management team moved forward working through a process that assured keeping the best elements of what was acquired. They weren’t afraid to deviate from the norm because we could document exactly what current and future potential they had acquired. It would turn out to be a win for both the acquirer and the acquired.

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