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Business Owners, Buyers, CFOs

Running vs. Merging: What Occasional Acquirers Need to Know


Study after study has shown that frequent acquirers (those who spend at least 5% of their market value per year on acquisitions) have far higher success rates with their deals than occasional acquirers.

A rough definition for “occasional acquirers” is those companies whose rate of management turnover typically exceeds that of acquisitions – meaning that the process of acquiring and integrating a target is essentially reinvented each time.

One of the unfortunate self-fulfilling tragedies of occasional acquirers is that they don’t know what they don’t know.

And the main thing that they don’t know is this: running a company is not like acquiring one, that merging two businesses is not the same as running one bigger one.  It’s just not.

Experienced acquirers know the essential differences and build concerted integration efforts to deal with them. Following an earlier article on what to do about this dilemma, questions arose as to why exactly the two aspects of corporate management are so different.

Let’s answer them.

First, running a company is an ongoing effort; merging a company is a finite activity. That may seem like a distinction without a difference but it’s not. One is business management; the other is project management. See? A ≠ B.

That simple difference sets the stage for the real key here: running a company is more or less about optimizing an existing set of circumstances, be they skills, technologies, timing, product attributes, locations, customer lists … whatever. Merging two companies is about change.

And change is chaos. Change involves uncertainty and the loss of control. It means unknown territory, surprises, turbulence, and vastly increased margins of error. Change is essential, even exhilarating, but it’s also terrifying. And change can paralyze your people, the very instruments through which all your other practical machinations will succeed or fail.

In the day-to-day running of a business, decision-making tends to be hierarchical and based whenever possible on optimum information and thorough analysis. In a merger, there’s no time for that. You make decisions quickly on imperfect information, execute them, and, when they turn out to be less than brilliant, make the necessary adjustments without finger pointing, navel gazing, or tears. So the decision-making process has to be structured to step quickly over the normal hierarchies. There must be direct circuits to the top.

Running a company is monitored using a standard set of metrics. Merging two companies involves a completely different set of metrics, aimed at the strategic intent of the deal itself, not at the company as a whole. You may well apply normal metrics to the target’s day-to-day performance, but not to the integration. Why? Because monitoring an integration is about measuring how well the changes are unfolding. Track results that measure the progress against the specific strategic intent and value drivers of the deal.

Finally, in an ongoing business, managing culture is a part of the normal “breathing” of a company … essentially a non-event. But if you are trying to make an acquisition work, culture is a big, complicated, demanding event — one that is not entirely predictable and not easily measurable.  You can get a lot of things right in your integration but messing up the cultural part can still bring the rest down. That alone is difference enough to make the sensible acquisition rookie take note.

Acquisitions are definitely not business as usual … they’re not even business as usual on steroids.  They are a terrific avenue for corporate growth but they play by a completely different set of operational rules. Follow those rules and you’re on the road to a win.

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