About three years ago a CFO talked to me about his company’s acquisition search process. He confided in me that his firm’s president had traveled a great deal to research potential targets with very poor results.
Based on the CFO’s recommendation, the President met with me to discuss our process and tools.
He quickly told me that I could not possibly add to what he knew about his industry or his database for potential candidates and he showed no appreciation for our criteria measurement tools, or the concept of large scale contact and database building & management that our company provides to clients just like his.
He preferred his one-at-a-time trips to visit target companies and sent me on my way.
Two years after our meeting, I checked in again with my CFO contact and asked the direct question, “has your company completed a transaction since we started this discussion (elapsed total time of five years)”? His answer was “no”.
What this company has spent investigating acquisition candidates, one at a time, nationally and internationally over the past five years is many times what they could have ever spent with a professional for profiling and researching target candidates, compiled in an organized fashion to ensure a selection of well chosen candidates.
This is another case of a board hiring an outside president because they recognized the need to grow their company by acquisition.
Companies like this sometimes feel compelled to make transactions that don’t fit.
That’s where data feeding the KPMG study stating that only 17% of acquisitions created a substantial return add value comes from.
Know the acquisition history of the president you hire if you need to have acquisitions done. If you are working with someone with a small history, it is necessary make up for what’s missing. Acquisitions are a complex, costly, and risky process.
Have something to add? Your own business wit?
Got a different point of view, want to play devil’s advocate, or just think we’re all wet? Post your experiences or examples.
Mike Tikkanen
www.PackardAcquisitions.com
952-542-9318
#1 by Victor Rossin on June 7, 2010 - 7:24 pm
Mike,
Excellent question! I have also worked for start ups and large companies. What I found is that there is a basic disconnect between the BoD and the current management. It is based on the fact that very few BoD members have successfully commercialized anything in their careers. As such, they do not fully understand the technology and its value proposition to the customers, or sales and marketing plans on how to market and distribute the technology.
In my opinion, the road to success would be a much smoother path if at least a couple of BoD members had that kind of experience in the past. Then, they would fully understand the intricacies that the current management is proposing, they would understand the challenges and be able to advise and/or assist on the adjustments to the plan (that are often needed). In this case, the synch between the BoD and Mgmt is ON and ALWAYS.
#2 by Toin Jansen on June 9, 2010 - 7:59 am
4 years. 2 years to get started on deals and 2 years after closing deals to evaluate performance vs business case. Money: if this is new I would not gamble too much. Only invest money which you are willing to loose