It is more common to find acquisition teams weaving a silk purse out of a sow’s ear than to find them working on the front end to build a process and tools that create database of qualified target candidates to meet measurable criteria worked out through meaningful exercise.

Work done on the front end to systematize the acquisition process minimizes the chasing of dead ends & saves considerable  time & money.

In response to the majority of deals that never make it to closing (50%) and those that destroy value once they are completed (over 50%) a few smart companies have incorporated the innovations that makes systematic growth through low risk acquisitions predictable (Warren Buffet, Digital River, Lawson Software – the “old” Lawson Software).

The manufacturer I left last week was sure there was no budget for programs and process that would appreciably lower the risk of bad candidates and failed transactions.   They were however, full speed ahead spending millions of dollars on acquisitions.

A recent PA client just finished digging out from the financial disaster that was the result of a bad acquisition completed ten years ago.

Like the cat burned when it jumped up on a hot stove; it will never again sit on a hot stove (nor will it ever again sit on a cold stove).

If you have a story to share about a company you know that chose the innovative path over the common we would love to hear about it. If you know a story about an acquisition that failed or destroyed value, remember it’s not nice to point.

Is your company common or innovative?

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At the time I suggested strategic partnering with industry as his technology was game changing and it would be difficult to bring to market without huge investment and very good management (that the company did not have).   I asked him to consider my approach as a risk reducing plan B if his plan A wasn’t working.

Like other inventors I have known, he refused to consider the joint venture approach and stuck to his own money raising business plan.

Thirteen years ago I revisited this fellow and was told by him that they were on the cusp of a great new investment that would end all their problems.

Just a few months ago, I called on this company again (new name, same company), my old friend has been tossed out by investors and his reputation within the company is unfortunate (he was brilliant and hardworking).

Still under a million dollars in annual sales, a product no longer miles ahead of the competition, & investors that are worn out and edgy.

Med tech, nanotech, low tech, inventors often believe that the only path to success is more money.  Being open to a two track approach (plan B) gives them choices they don’t have when the finance valve closes.

Losing the edge of superior technology and running out of money make success unlikely.

Corporate communication can save good employees and customers during the acquisition process if used wisely. The loss of key people and customers is extremely costly.  The investments in team and resources to preempt these losses are quite modest in comparison.

Because it is a difficult topic with no single right answer, management often fears saying anything that might disturb the troops.  When nothing is said & rumors become the key to information, employees ride the emotional roller coaster that drives those who can move on to consider other possibilities.

The key man of a manufacturing plant decided that he should have been in the loop & when he found out days before the closing, he moved to another plant not far away that had been chasing him for years.  Without the key man, the 80 old owner lost the sale of & eventually his business.

Financial diligence is more straight-forward and often gets the most attention, leaving non- financial audits & corporate communication under-valued and often attended to as an after-thought.

Attention to this detail should be a primary concern for any acquiring entity, and finding the talent and resources to make sure it is addressed in a professional and balanced fashion can be one of the most important pieces of due diligence both pre and post-merger.

Have something to add?

Got a different point of view, want to play devil’s advocate, or just think we’re all wet? Post your experiences or examples

The process of contacting and starting conversations is best to be thought out beforehand with a team that includes a sharp legal mind & a good negotiator.

Done right, this is the fastest and most efficient means of finding the best and most motivated candidates & ensuring a successful transaction.

Beats wasting time with less effective means and difficult people; experience our online webinar to see how it’s done;

mike@packardacquisitions.com

Are there procedures in place to monitor the effectiveness of current acquisition strategy?

What would be discovered if a cost benefit analysis were executed?

Two top executives have interviewed me recently; both held that their corporate acquisition strategies were superior; both have spent into seven figures without any positive results.

The first gentleman spent almost one year at time looking at a single company (over a seven year period investigating seven companies) in other parts of the world.  I expect that he liked to travel.  The second fellow had investigated hundreds of companies over a four year period (he liked to work hard).

Neither approach ended in a transaction.

In the first instance, the defining criteria were extremely restrictive & the pool of candidates (one at a time) was just too small.

In the second case, the strategy of calling twenty brokers and requesting a thinly defined criteria guaranteed that the myriad of candidates would be poorly selected and a great deal of work just to find one that might fit.

A simple criteria exercise & contact discovery process would have brought many well-qualified candidates into the endeavor and not taken four or seven years to execute a worthy transaction.

Why is this so rare?

(50% of acquisitions don’t make it to the closing table & more than half of all completed transactions destroy value)

Six years ago, A CFO acquaintance spoke to me about his company’s acquisition search process.

He confided in me that his firm’s president had traveled extensively 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 my approach was not superior to his and I could not possibly add to what he knew about his industry or his database for potential candidates.

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 one-at-a-time trips to visit target companies over our process and sent me on my way.

A few 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 six years)”? His answer was “no”.

What this company has spent investigating acquisition candidates, one at a time, nationally and internationally over the past six years is many times what they could have spent hiring a qualified president or working with a professional firm for profiling and researching target candidates.

Companies like this sometimes feel compelled to make transactions that don’t fit.  Fortunately, that did not happen;

That’s where data feeding the KPMG study that only 17% of acquisitions add value and over 50% of acquisitions destroy 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.

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

Send an email to;

Mike@packardacquisitons.com

The lecture goes something like this.  “So, you want me to build a system that fits in 3 cubic inches?  No problem.  All we need is some moon rocks.”

The idea is, if you ask an engineer to do something impossible, he knows he has to say yes, but, the only way he can turn the problem back into yours, is to specify a component that you have to get for him, that’s equally impossible to get.

The same problem exists whenever you’re thinking about acquiring a technology for some commercial purpose.  It’s very very important to keep an eye on the reason why you’re doing this in the first place.  If you lose sight of that reason, you may find yourself in a place you never dreamed possible.  One interesting example comes to mind.

A particular investor happened to own a cutlery factory in theU.K.  One of the key elements of cutlery is that knives that start out sharp, tend to get dull with use.  This is something that has been known since pre-humans pounded rocks with other rocks to make stone knives.  In fact, knife edge design may have been the first sign of technology that would ultimately lead to the show cases of our current technology like Twitter, Angry Birds, and Xbox.  This particular investor was looking for new metallurgy to bring back toSheffieldso he could produce longer lasting knives —  a clearly defined goal, with clear consequences if achieved.

There was aU.S.company that specialized in manufacturing metal toys.  This company had developed some special alloys that made their toys some of the best quality toys in their market.  The metallurgy in fact was very similar to that used in the cutlery, so much so that the investor came to visit the toy company to see if he could acquire or license the technology for his cutlery.

When he sat down with the CEO, they had a wonderful discussion, and everything seemed like they would come to an agreement, except for one minor “oh by the way.”  The CEO noted that one of the major shareholders in the company was trying to do a hostile takeover of the company, and if that happened, the CEO would be fired, and the metallurgy wouldn’t be available to the investor.

The only possible solution would be if the investor purchased a massive amount of stock so he could get on the board and prevent the hostile take-over.  In effect, to get the metallurgy, he had to buy the company.  Now investors are just people, and they tend to think that the key to any deal is the people, and he really liked the CEO.  Had we been in the room at the time, we’d have told the investor that it’s time to go look for some different rocks to pound.

So with his viewpoint adrift, the investor purchased the stock, got on the board, and discovered something about hostile takeovers.  People who initiate hostile takeovers are not discouraged by brick walls.  There is one absolutely sure fire way to get through any brick wall.  It’s called a stockholder suit.  So our investor from theU.K.found himself in aU.S.district court discovering that he had decreased shareholder value, and as a board member, was personally liable for the losses of the other shareholders since he obviously knew nothing about the toy business and belonged back in theU.K.pounding rocks to make knives.

Fast forward a few years… the investor survived the legal action, the company’s value did go up, and ultimately the company was sold off to one of the major toy manufacturers which made all the shareholders scream with joy.  There is one minor footnote which makes this story worth telling.  He never ever ever got his hands on the metallurgy.

Each of us knows the concept of “keep your eye on the ball”, but when the real world grabs you, sometimes we need that little extra voice to remind us, “why are we doing this?”

This article was written by Glenn Fishbine

Glenn provides deep technology, mentoring, and technical partnerships.. He has four decades of experience in a wide variety of technologies and has held senior & board positions on several technology companies.

He focuses on the technology footprint and strategic planning for new ventures and provides leadership and coaching to product and engineering teams.

https://sites.google.com/site/breakingpointsolutionsllc/

He can be reached at;

Glenn;  glennfish@gmail.com

612 387 7536

When John was hired he began the search process by calling brokers nationally with a generic request for businesses that were in his industry and under X dollars in sales volume.  Over four years John and the 3 key management employees looked at about 200 broker delivered companies, and deeply investigated over 40.

This represented almost half of the president’s time & about 25% of the other three key company management personnel.  There was one transaction possibility but the team’s negotiating tactics killed the deal.  I was asked to restart negotiations with this candidate but I did not think anyone could save it so I declined the offer.

A conservative estimate of time spent by the management team, direct costs of travel + outside consultancy equaled considerably more than a million dollars in direct expenses, and at least that much in lost opportunity costs and the fact that this firm was losing market share and profitability each year it did not complete an acquisition.

Definition and database building are the key ingredients to finding a pool of qualified candidates.

Warren Buffet wisely states that one should not ask the barber if you need a haircut.  Non-brokered opportunities based on defined specifications would have been exponentially more likely to become successful transactions than the method John employed.

It is appropriate to point out that M & A attorneys indicate that about half of all transactions don’t get to the closing table (generally for very good reason) and of those that do, a very big percentage just don’t add value & many destroy value.

Companies that have criteria, tools, and process for finding well suited candidates do far better than firms that jump up from the board meeting charging ahead with a great energy and minimal definition, talent, or process for this complex undertaking.

It’s not overstating it to say that the Warren Buffet’s of the world have developed the tools, talent, & process necessary to make acquisition a measurable and low risk endeavor (and are well rewarded for their efforts).

My suggestion;

*  Determine precisely what fits and create a weighted averages criteria model to measures candidates and allow comparison in ranked order.

* Create a plan for building and contacting a large number of specifically chosen candidates with a well crafted contact letter & learn how to search for specific niche companies that fit a more defined criteria.

* create a system for compiling and managing information from the many companies that will be reviewed over the coming months,

* Build a team that can execute the different elements of the process from definition and search to closing and integration.  There is considerable expertise that needs to be in place for each stage of this process.

Having the tools, talent, & systems in place to discover and research the best candidates, manage the information, put the right people and procedures in place in a timely fashion (acquisitions are time sensitive) will pay dividends for years to come.

That is what it’s all about after all.

Contact me for more information

Mike@packardacquisitions.com 952-542-9318

Mike Tikkanen

www.PackardAcquisitions.com