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  • Per-Olov Lindgren

7 tips to avoid unsuccessful acquisitions

The most important motive for an acquisition is growth and increased value, however, the statistics show that in most M&A these goals are not achieved. The fact that most acquisitions fail is not news, but it is very well documented. In this article, Strandgården tries to describe the underlying causes and present a checklist of measures that should be done before due diligence and in the integration process. Deloitte describes in its “M&A Trends | Year end report 2016 ” that most respondents (84%) say that at least some of their acquisitions in 2015–2016 did not generate the expected value or expected return on investment. In the Deloitte report “M&A Trends report 2014”, the results from the respondents are corresponding. The report describes that the most important reasons for successful integration are the ability to retain customers and create growth. The study also shows that these are the most challenging tasks to solve in the integration after the agreement has been signed.

1. Fits into the strategy - strategic fit

At the earliest stage, even before the acquisition plans are made, the buyer should focus on target companies whose operations fit into their own strategy. This is done by ensuring that the M&A strategy itself ensures that selected target companies fit the framework for their own strategy. Target companies that have the same customer category, the same or close complementary services / products, similar sales business models, similar technology platforms, similar production and delivery methods have greater opportunities for successful integration. M&A strategies with target companies that correspond to the fact that you have "walked a mile in my shoes" and feel the industry "like your own pocket" significantly increase the success factor.

On the other hand, acquiring target companies whose operations are completely foreign to the buyer dramatically increases the risk of the investment failing.

2. Do not think that the top customers are loyal

Make sure you have such complete information about the target company's top customers' actual attitude. Survey methods such as Net Promoter Scores (NPS) that measure whether customers are Loyal, Passive or Critical and how the target company behaves in comparisons with competitors provide very important information before and during the Due Diligence process. This survey may well do without revealing a planned acquisition. The consequences of the customer survey can show two sides, the risk that future revenues will decrease or that they will leave the target company altogether, this may then mean that the quality is less good in earnings forecasts and that growth will be worse. The other side is that you find the growth opportunities. Immediately after the agreement on access has been signed, the buyer in the Integration Work should immediately address the views received from Passive or Critical top customers in order to avoid loss.

3. Benchmark target company with key competitors

You must not fall into the trap and settle for a reasonable NPS result, but it is necessary to compare it with the target company's most important competitors. In customer surveys, it happens that the customer gets a satisfaction value that feels ok, say 5.5 on a ten-point scale. In a deeper analysis, the main competitor is say 7+ and the customers have a passive attitude to the target company - they are a little hesitant to recommend them to a friend or colleague. It becomes more serious if the top customers are critical and highlight dissatisfaction and there is a risk that they will leave the target company. The competitive context is thus always important to include in the analysis.

4. Price and margin increases - if the conditions exist

The fastest way to increase revenue levels is through price increases and often a kick-start to increase value. However, it can be risky to raise prices and the buyer should ensure the following conditions.

  • Does the target company have a relatively high NSP result?

  • Are the services / products and prices competitive?

  • How important is the price parameter for decision-makers among customers?

With good NPS values, high customer value for services and products, criteria other than price can be the important ones for the customer. If the answer to these questions is positive, price increases do not usually lead to a loss of sales volume and market shares.

5. Take advantage of business synergies

Acquisitions usually have two types of synergies, those on the cost side and those on the revenue side. Realizing cost synergies is often easier, while it is more difficult to realize increased revenues and growth. When increased revenue and growth are the main objectives, the buyer must take into account both macro- and microfactors / analyzes in order to find these opportunities. Companies such as Gartner and Forester regularly present macro analyzes of industry and industries, and the buyer himself believes that they have a clear picture of the trends. To identify the actual growth opportunities, it is necessary to layer the macro and micro patterns on top of each other to see the gaps. The micro-information should come from initiated customer interviews in industry / industry and cover, changes in buyer criteria, in customer needs, product development, competition, new legal requirements, economic factors, etc. When you combine these analyzes on top of each other, gaps or new needs and growth opportunities can be discovered. . With this analysis at the bottom, own business and sales processes are added to see what opportunities can be realized. When the analysis shows that:

  • We know customer segment needs and buyer criteria

  • We can deliver on these with value-adding services / products

  • Our organization has the incentive and expertise to create the business

  • We already have the working processes needed

  • Or can further develop existing ones

  • We can complete the business with competitive prices and sufficient margins

If the answer is yes to these questions, you can enter the developed segment.

The lowest hanging fruits in the growth context are always increased deliveries of complementary services / products to existing customers.

6. Just make meaningful innovations

B2B customers are constantly looking to develop their business and thus need the suppliers to contribute through innovation of their services / products and pricing models. The innovation can refer to both more function and a more suitable pricing model, such as On demand payment only when using and variable price for consumption. The innovation must be based on customer needs, for example those that emerge in customer interviews such as the NPS model. The consumer sector (B2C) has long built its product development on customer needs, while in B2B too many innovations are created in the R&D department. The best balance is that R&D only deals with the question of whether it is technically possible to implement while the business units decide on which innovation investments to make. The focus on innovative investments should thus be in accordance with the M&A strategy and derived from customers.

7. Integration

As was clear from the surveys that have been done on M&A projects, it is the integration of the target company that often fails and is most challenging. The professional framework for an integration project can be summarized in the following headings:

  • A well-thought-out Integration Strategy

  • That the end result and goals are defined

  • That there is a control method and measurement of intermediate goals takes place

  • Responsible with a mandate to make quick decisions

  • The project applies a method for the changes (change)

  • Synergies are realized quickly

  • Ensure key people and organization

  • Prepare technology and systems so that no time is lost

  • Communicate clearly and distinctly

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