Only a small percentage of acquisitions add value & over 50% destroy value, It takes no special talent to find companies to travel to, investigate, make offers, arrange finance, & close deals. Any good broker can fill your plate with companies to review & most senior management has experienced an acquisition or two.
Interim CEO reports that the average number of acquisitions completed by 71% of top management hired specifically for acquisitions is less than three.
This explains why most deals don’t add value. Many companies look at poorly chosen acquisition targets spending significant resources with little chance of a return. Often the pressure to close a deal after years of search leads to the buying of a company that will destroy value.
Deals that add value are those that were well defined and researched on the front end by smart people using high value process and followed up with good negotiating, due diligence, and integration teams.
A failure in any of these areas has the potential of making a giant mistake. Half of all non-financial business failures were private equity owned last year. What does this tell us? Even the people hired to make acquisitions are making big mistakes.
The past twenty years have allowed below par performance of the best and the brightest because the economy was on fire and finance was easy.
Today, the management team determined to grow through acquisition without adequate definition, talent, and process will find recovering from a bad deal, or wasting resources on a poorly constructed search process unaffordable and likely to lead to critical.
How many of us have travelled, researched, investigated, opportunities that should have been rejected by a well constructed criteria model?
Something more or less fits and an offer is made (after all, this has been a major effort and we need to show results). With luck, a strong management team, and sound integration strategy, the deal will go together.
If the deal was an opportunistic misfit, almost no amount of strong management and sound integration skills can stop the cascade of problems that arise (hence the negative statistics regarding acquisitions).
This is the piece that gives us stories to tell about other people and catastrophes.
How to lower this risk?
Packard Acquisitions founder Mike Tikkanen starts with a robust criteria model to take risk out of the search procedure from the beginning.
Speaking from 100 completed transactions, Mike believes that a practiced investigative team and capable negotiator will strike a successful deal with a sound company while identifying the integration issues on the front end every time if the criteria model is used wisely.
Finally, due diligence is a science that includes risk management at several levels: do your insurance people know how to evaluate risk or do you require outside help? Objectivity and someone practiced in business risk can save a badly stubbed toe.
What would be discovered if you executed a Packard Acquisitions cost benefit analysis with the process you are now using?
What is known can be controlled.
What is not known cannot be controlled.
We always find out, But it is much more expensive to find out later
Contact me to attend the next Pacquistions 90 minute workshop at the Minneapolis MN/Edina Country Club or ask about an onsite presentation for your firm;
Mike@packardacquisition.com 952-542-9318; www.packardacquisitions.com