Acquisition booby traps

IN A TOUGH climate, the FD is often perceived – if not always accurately – as being the main driver of a cost-cutting strategy. The same attention to detail that ensures a company powers through a recession is also needed when the company is committed to growth through acquisition.

To ensure acquisitions or mergers are judged as successful one year and five years down the line – as in the heady days following the actual deal – you must be confident the purchase fits into your overall strategy; know exactly where the acquisition will add value down the chain and ensure the company you are buying is a good fit with the existing business.

Company and culture fit is key. Unless organisations share similar values and ethics, there could be problems further down the line resulting in time – and therefore money – lost in resolving these issues.

Strong due diligence is paramount here. How well known is this company and its leaders to you? What have you read about them in the press? How are they judged by their peers? Don’t underestimate the importance of this: the impact on your profits could be significant.

It is essential to ensure there is full understanding, communication and agreement between both parties. In my experience, even a small breakdown in relations can have a surprisingly large impact, particularly on staff morale and therefore productivity, and putting in jeopardy the future success of the combined entity.

It is a given that senior management know their business plan and can see how the acquisition helps to underpin a growth strategy. Any FD worth their salt will be examining not just the short-term gains but also the value added to the organisation several years down the line. How will the acquisition add value to your business? Does it bring additional revenue streams, a patent or licence or a piece of technology vital to improve speed and efficiency for your customer base that would otherwise take considerable time and cost to develop? Will the whole be greater than the sum of its parts?

Absolute clarity is also required on how to drive value from the combined entity. Identify what economies of scale will be realised and what cost savings are required, while taking care to ensure they will not affect the smooth and efficient running of the organisation. What will be the transition costs of bringing these companies together before these cost savings can be realised? What are the estimated timescales of aligning both IT systems? Frequently this takes considerably longer than anyone expects. A well-considered plan is required for the integration of the two companies with all the key players involved.

Finally, make sure you fully communicate and engage with staff from both parties. Strong staff buy-in is fundamental to the success of the acquisition. Their engagement will help facilitate an effective transition, your customers will remain well looked after, and productivity will remain high. These would be good leadership skills during any major change project; sadly, however, communication can often be overlooked to the detriment of the organisation. It is the people in your organisation who help generate your profits so it is important you look after them.

Ultimately, the most successful mergers and acquisitions are those based on extensive preparation in all areas – and commitment to open communication. You could say I’ve been lucky, but I’m convinced the success of the acquisitions in which I’ve been involved have been down to finding that excellent fit, communicating – and asking tough questions – right from the start, and engaging with staff from the top, right down to the shop floor. ?

Andi Lonnen is finance and commercial director of Contis Group