Acquisition Strategy

Effective leadership plays a critical role in integrating companies following an acquisition. Challenges abound, for instance when disagreements arise between the executive team and the rest of the staff. How do you bridge the gap? Communicate painful decisions? Maintain calm during a period of change?

As the leader of an integration process, you should:

  • Be aware of the key challenges and opportunities
  • Recognize that different management styles can bring new value to the combined organization.
  • Be good listeners. Those who aren’t decision-makers need to be heard and to hear from their leaders in response.

Leaders who bulldoze their way through integration breed resistance within the acquired company and are likely to be frustrated by a lack of progress. This can be avoided by adopting a collaborative approach.

That isn’t to suggest that as a leader you should simply acquiesce, but rather that you balance the input of executives and employees and make decisions that best serve the interests of the organization.

Leaders choose which issues may be negotiated, and which are beyond discussion. They must clearly communicate how decisions will be made and how information will be disseminated.

Consider the challenges of integrating Kraft and Heinz following completion of their merger last July.  The Wall Street Journal reports Kraft Heinz is closing seven facilities, including Kraft’s former headquarters near Chicago, and cutting 2,600 jobs. In situations like that, leaders must make tough choices, combining two companies with strong cultures and entrenched staff. Cost cutting, innovation and automation may be essential to the success of the integration, but so is the way in which these dramatic changes are implemented.

The quality of leadership can make or break an integration program.

It goes without saying that the introductory meeting is a crucial step of the acquisition process. If it goes well, your partnership could result in a successful deal. If it goes badly, you may be throwing away a great opportunity and have wasted hours of time and resources chasing the deal.

Your goal for the first meeting is to impress the owner or management team of the acquisition prospect and keep them interested in learning more. In not-for-sale, strategic acquisitions, it’s especially important to convey your strategic rationale and vision for the future. The owner is not looking for a reason to sell, so it’s up to you to convince them to even consider it — and why you would be the best buyer of their company.

I’ve found that, without proper guidance, buyers tend to make the same mistakes in first meeting with owners. Here are 5 common errors:

1. Using a Generic Presentation

Failing to customize your presentation for each target company is a huge mistake; a generic presentation is the best way to get ignored or even kill a deal. No one wants to receive a boilerplate presentation that is irrelevant to their business and current situation. Take the time to tailor the presentation to the acquisition prospect. Think about what you have learned about the company during research and your introductory call. What are the owner’s hot buttons? And what might motivate them to consider selling? Even simple touches like adding the prospect’s logo to the footer of the presentation really make a difference and demonstrate that you are serious about the deal.

2. Bringing In Lawyers Too Soon

Lawyers and advisors are necessary and important figures in M&A, but lawyers aren’t needed at a first meeting. That only elevates tensions and can close off communication with a seller who may be less experienced than you in M&A. Even if the seller decides to bring their lawyers, leave yours at home. We once had an anxious owner who scheduled our first meeting at his lawyer’s office. We agreed, but said we wouldn’t be bringing any lawyers. Upon hearing this, he changed his mind and we ended up meeting at his company and even getting a tour of his plant. Not having lawyers completely changed the atmosphere of the meeting and our conversations. Our client was able to connect on a deeper level with the owner that ultimately led to a successful acquisition.

3. Not Selling Your Vision

Even though you are the buyer, you are effectively trying to sell your vision of a successful acquisition to the owner. How would the transaction benefit both companies? Why do you want to acquire this specific company? Why are you the best buyer for their business? These questions should already be answered and your goals should be clearly defined before you even approach an owner about acquiring their company. Then, once the owner expresses interest, you’ll be able to share your vision and strategic rationale in a clear and convincing manner rather than scrambling to put together an explanation.

4. Taking Charge

Demanding the first meeting be on your terms, or on your turf, puts sellers on the defensive. Let them pick the location and allow them to be your hosts. Making them comfortable may mean they are more willing to talk openly about the possibility of an acquisition.

5. Talking too Much

One huge mistake buyers make is saying too much too soon. The introductory meeting is like a first date. Don’t spill all your secrets right away or expect the owner to tell all. It’s important to keep some information back until a later time. A great way to make sure that you don’t put your foot in your mouth is to limit the time spent during your first visit. Typically we will have a dinner the night before and a three-hour meeting the next morning. Specifically, avoid having breakfast with the owner, and do not stay for lunch. The simple rationale: If you stay too long you may be tempted to fill dead air and venture in too deep too soon. Remember, if all goes well there will be more meetings and more opportunities to share information.

 

What is the best way to position your company to be sold? I’ve often heard this question from owners and executives who aren’t quite ready to exit their business but who may be thinking about its future over the next five to 10 years. If you’re in this position, you’re wise to begin thinking about the process early on – planning is essential in preparing a business for sale. Spending time on preparation will increase your likelihood of selling to the right buyer.

In my experience working on the buy-side, I would say the most important thing buyers are looking for is profitable growth. They will want to know that they can take what you have built and continue to grow it; otherwise the only other synergy would be cost savings.  Therefore they want a business that does something unique that other companies, start-ups or technology can’t easily displace.

Every business is different, but here are some areas that buyers tend to focus on when looking at an acquisition:

  1. Customers — Ideally, you have lots of them because customer concentration creates vulnerabilities.  You also need a system in place to bring on new business that doesn’t require your hands-on engagement, preferably with multi-year contracts.
  2. Audited or Reviewed Financials —  Potential buyers will have a lot more confidence in your business and the numbers if you have 3 years of audited or reviewed financial statements.  It goes without saying that a high-margin business is always desirable.  Tax returns will be asked for so make sure to file them — truthfully!
  3. People – Who is instrumental in the success of your company? What is your balance of employees and 1099 contractors?  These are increasingly important factors for a buyer. You’ll need a robust HR system for recruiting, hiring, training and retaining? Buyers also look at the quality of management. Do you have a team in place to run the business for the new owner, without you? A company that’s over-dependent on one individual has lower value as an acquisition, so make sure there are others ready to take over the operation when you leave.

SABMiller has agreed to Anheuser-Busch InBev’s $106 billion offer to acquire it. Together, they will form a global beer conglomerate with $64 billion in annual revenues that is estimated to make up 29% of global beer sales. The new company would be three times bigger than its next competitor, Heineken. Given that this is such a large acquisition, the merger will of course, be subject to regulatory approval and the two companies will likely need to sell off some assets in order to gain approval.

Strategic Rationale

With this acquisition Anheuser-Busch will gain access to fast growing markets like Latin American and Africa as sales in traditional markets like the U.S. and Europe have slowed down. This trend is widespread across the beer and even the liquor industry and is forcing large companies to take action. Earlier I wrote about liquor giant Diageo’s strategy to woo African drinkers with its own brand of spirits and beer. It seems like Anheuser-Busch is pursuing a similar path to growth by following future demand. Originally founded in Johannesburg, South Africa, SABMiller is the largest brewer in Africa, with a 34% market share. An acquisition may be the fastest and safest route for Anheuser-Busch to enter into a new market and attract new customers.

Negotiations

The agreement comes just days after SABMiller rejected Anheuser-Busch’s offer. As with many publicly traded companies, there were multiple shareholders to convince which took many talks over the course of several weeks. The investment bank 3G Capital which helped put together Anheuser-Busch, negotiated with two of SABMiller’s biggest shareholders: the Santo Domingo family and tobacco company Altria.

In any acquisition, understanding the motivations of the seller is critical to the success of an acquisition. In the case of Anheuser-Busch, without the approval of the two largest shareholders, SABMiller would not have agreed to its offer. Although privately held, middle market companies typically do not need to negotiate with multiple, large shareholders, especially not publicly, you may need to negotiate with two owners or even a family. These owners may want different things out of an acquisition. As a buyer, it’s up to you to figure out what the owner or owners really want and what will motivate them to sell. In this case, SABMiller, wanted something in addition to a high premium, it wanted assurances that the deal would pass regulatory approval and a $3 billion breakup fee.

Photo Credit: nan palmero via Compfight cc

In my over 20 years of pursing strategic, not-for-sale acquisitions for clients, the most important piece of advice I have is: be prepared. It may sound simple, but I cannot stress enough how critical preparation is to M&A success. This applies to every stage of the Roadmap to Acquisitions, our M&A process, from initial strategy to research, to due diligence and integration.

Capstone Roadmap to Acquisitions

The Roadmap to Acquisitions in a strategic, proven process for pursuing M&A, based on over 20 years’ experience.

Develop a Plan

In the early stages of the M&A process, you must develop a carefully planned strategy to guide your search for the right acquisition. This means that before running off to pursue companies to buy, you take the time to really examine your business and your vision for the future. Think about your overall strategy, how M&A can help you achieve it and what steps you will be taking to execute. The point of pursuing acquisitions is not for the sake of buying another company – rather, executing an acquisition should be a tool for reaching your strategic goals.

This foundational step will determine the success or failure or your program. Acquisitions are inherently risky and those who come to the table armed with a plan increase their chances of success.

Do Your Homework

As you move along the acquisition process into conducting market and company research, preparation remains important, especially when it comes to primary research. When calling key contacts in the marketplace or owners of companies, it’s important to be knowledgeable about the industry so that the caller takes you seriously. We call this “doing your homework.” This means, that before you even pick up the phone to conduct primary market research, you have already conducted secondary research by accessing articles, websites, reports, and databases. And before making contact with an owner, you have already analyzed the market, researched the owner and studied the company.

Without preparing for these conversations, it’s difficult to maximize the value of your discussion and ask the right questions. You may miss out on an opportunity to gain new insights, the caller may refuse to speak with you or you may even damage a relationship with a potential acquisition prospect.

On the other hand, if you have prepared well, you may gain new insights about the market or the industry, and begin to develop a relationship with an owner that may turn into an acquisition.

Move Swiftly

When it finally comes to executing the deal, a lot of your hard work and preparation pays off. Ideally you have identified the best candidates for acquisition in the most effective way by following your strategic acquisition program and by thoroughly researching markets and companies.

It’s also helpful to have all your documents and financing ready in order to maintain momentum. Nothing kills a deal like stalling and you do not want to be scrambling at the last minute to put together a financing package or paperwork for the deal.

Being prepared is important even after the deal closes. Integration issues remain a top reason for acquisition failure. Slow integration can interfere with the effectiveness of a deal, and in some cases it can even lead to acquisition failure. After the deal closes, you only have about 100 days to implement changes, or employees become resistant. And there are a number of mission critical items that must be addressed on Day 1. One way to mitigate, or even avoid integration issues, is by developing an integration plan long before the deal even closes. This way, you’ve had the time to anticipate integration challenges and develop solutions and your integration plan is ready to be deployed on Day 1.

No Short Cut, Just Hard Work

There is no short cut to preparation. It takes good old-fashioned work, strategic thinking and attention to detail. While it does take time and effort, it’s the most effective way to increase your chances of acquisition success.

By now, many of you will have heard of Berkshire Hathaway’s $37.2 billion acquisition of Precision Castparts Corp. (PCC), an aerospace parts manufacturer. The acquisition is Berkshire Hathaway’s largest to-date which goes to show with each strategic acquisition, Berkshire Hathaway must make bigger and bigger deals to “move the needle.”

Strategic and to the Point

The straightforward nature of the deal’s press release is particularly refreshing and reflective of Warren Buffett’s overall attitude toward strategic acquisitions.

“I’ve admired PCC’s operations for a long time. For good reasons, it is the suppler of choice for the world’s aerospace industry, one of the largest sources of American exports,” said Warren Buffet.

Mark Donegan, PCC’s chairman and chief executive officer stated: “We see a unique alignment between Warren’s management and investment philosophy and how we manage PCC for the long-term.”

You can read the full press release here.

You’ll notice there are no flowery words or long-winded paragraphs in the press release, unlike the now infamous AOL-Time Warner deal. As I’ve stated before on this blog and in my book, at Capstone, we are big proponents of having only ONE reason for acquisition. Having a simple, clear, strategic path forward leads to success. On the other hand, pursuing many reasons makes the deal unnecessarily complicated and unfocused.

Finding Growth through M&A

Warren Buffett’s latest acquisition reflects the overall trend in the market – M&A is the pathway to growth. Dealogic data reports $2.63 trillion in deals as of August 3, perhaps the most robust year yet. The Wall Street Journal notes, robust M&A “…has been driven largely by companies buying others to drive growth at a time when earnings increases aren’t easy to achieve.”

Organic growth options are anemic or stagnant at best, forcing companies to seriously consider M&A to drive growth. In today’s market, businesses cannot be content to sit on the side lines and go about business as usual. They should take a careful look at all of their growth options – including acquisitions – and determine the best path forward based on a strategic, proactive approach. Those who fail to move now and consider their strategy for growth will be unfortunately be left behind.

Photo Credit: xlibber via Flickr cc

Most companies are seeking growth outside of their core business through organic means or mergers and acquisitions, according to a new survey by McKinsey.

What’s interesting is that although many companies want to expand beyond their mainstay business, most do not have the capabilities to do so. Here are three best practice steps noted for successfully growing in new categories:

  1. Scanning for expansion opportunities
  2. Evaluating expansion opportunities
  3. Integrating new activities into core business

By following these best practices, companies are two times as likely to be successful; however, McKinsey reports that only between 27% and 33% of those that they surveyed did so.

When it comes to exploring new opportunities, business leaders are often too caught up in day-to-day activities to think about the bigger picture. Many are overly concerned with their competitors or simply are at a loss when it comes to generating new ideas for growth. This also means that once an opportunity is identified, it’s often the only one considered – so of course, the company has trouble properly evaluating the single opportunity and determining whether it is a good fit. And if an opportunity is not the right fit, there will be difficulties in integrating it into the core business.

If you find yourself in a similar situation, or simply wish to improve your capabilities, here’s some advice to help with your growth efforts.

  • Start with strategy – It should go without saying, but strategy is key to success. The survey emphasized the importance of having a clear, long-term strategy: “When executives say their companies have a clear strategy for expanding into new activities, for example, they are four times more likely than those whose companies have no such strategy to report significant value creation.”
  • Consider all your growth options – Did you know there are FIVE options for growth? They are: organic, external, minimize costs, exit, and do nothing. While you may be leaning toward one of these pathways, it’s best to consider it in the context of the others. This gives you a chance to seriously evaluate all of possibilities and provides a more complete picture. By considering all five options, you will either gain confidence about the decision you’ve already made or uncover a new path for growth.
  • Use tools to generate ideas – We use tools like the Adjacency Map and the Opportunity Matrix to generate, organize and evaluate new opportunities. We find that a brainstorming session using these tools gets the ideas flowing. No idea should be off the table, no matter how remote or crazy it may seem.
  • Evaluate opportunities with criteria – Develop criteria that match your ideal opportunity. Which aspects are most important to you? Market size, demographics, technological capabilities or something else? For example, if your overall strategy is to expand into Latin America, location is clearly important. Those opportunities that allow you to expand south of the border will be evaluated more favorably that those that don’t. Once your criteria are established, compare all options against the same criteria. This will help you remain objective and strategic.
  • Develop an action plan – You need a clear plan for executing and integrating the newly acquired business (or new product or capability) with the rest of your current business. For M&A, especially, integration is the number one reason for failure – so start planning early. Your plan should, of course, be guided by your long-term growth strategy.

If you’d like to continue exploring your options for growth, download your free copy of “Finding Opportunities for Growth: The Opportunity Matrix.”

 

Packaged food company ConAgra Foods plans to divest its private label branch Ralcorp after acquiring it in 2012 for $5 billion.

Why is ConAgra spinning off this private label business so quickly after acquisition?

The many reasons include pressure from activist investors, poor performance, increased competition, and tighter margins. Ralcorp’s revenues dropped by 6 percent over the past few years.

One key reason lies in ConAgra’s original acquisition strategy. When it acquired Ralcorp after chasing the company for over a year, ConAgra focused mainly on cost savings. At the time ConAgra stated the acquisition would “provide significant annual cost synergies.”

“ConAgra Foods intends to use its strong infrastructure and productivity capabilities to drive significant cost synergies from this transaction, primarily in the areas of supply chain and procurement efficiencies. It expects to achieve approximately $225 million of cost synergies on an annual basis by the fourth full fiscal year after closing.”

Unfortunately for ConAgra, focusing on the cost synergies of the deal has been unsuccessful. ConAgra has struggled to expand its private label business despite a growing private label sector. It has been unable to respond to increasing competition and shrinking margins. Cost-cutting has a place, but it can’t grow revenues or help your business stand out from the competition. This is why I recommend against focusing on cost savings in M&A. You can only reap the benefits of cost synergies once and then you need a new plan for growing your business.

Rather than focus on cost cutting, successful acquirers target adding long-term growth to business.

There are many reasons for acquisition other than cost-cutting, including:

  • Adding a new technology or capability
  • Entering a new market or sector
  • Adding talent
  • Enhancing your brand and reputation with customers
  • Blocking a competitor

Acquisition is a costly undertaking, both in terms of finances and time. ConAgra spent about a year and a half chasing Ralcorp only to divest it less than three years later. Don’t let your acquisition efforts go to waste. Make sure you have a compelling strategic rationale for the deal — one that is focused primarily on growth.

Photo Credit: Neubie via Flickr cc

I decided to answer a very basic, but important question about M&A, given that we often talk about strategic acquisitions.

Q: What’s the difference between a financial and a strategic buyer?

A: A financial buyer brings little inherent value to the transaction. Typically they bring capital and capital allocation knowledge, but usually no specific knowledge about the technology, application, or customers of the seller.

On the other hand, strategic buyers do have specialized knowledge about a particular market or product that will add value to the transaction, or what we call “synergies.” Synergies typically come in two forms – cost reduction or increasing revenues. Acquisitions that bring real value are focused on the revenue growth side rather than on cost-cutting. You can only cut costs once, but done right you can continue to grow revenue for years to come.

For example, although a strategic acquirer may be able to cut costs by consolidating overhead and admin expenses, that hopefully is not the only reason for the acquisition! It might be that the seller’s technology is complementary to the buyer’s and can be used to grow market share through cross-selling. In a recent example, Verizon just closed on its acquisition of AOL for its mobile advertising technology. Verizon is a huge mobile carrier and has expertise with mobile phones and an understanding of the technology and business. Adding mobile advertising is another way it can increase revenues with its current customer mix, especially as more and more people acquire smartphones.

For strategic acquirers, the focus of the acquisition should be on long-term growth for the entire business. Most strategic acquirers will buy a company and keep it rather than sell it after a few years to make a profit, as private equity groups tend to do.

Robust mergers and acquisitions activity is often an indicator of economic growth, but the recent flurry of deals do not reflect a confidence in the economy, Andrew Ross Sorkin writes in Dealbook.

Revenue growth of US companies has declined from 11.2% in 2010 to 5% to 2020, a Citigroup report indicates.  “Strategic actions such as M&A…have become a key priority to generate growth in the current environment. The lack of an organic impetus to growth is apparent in the outlook for capital expenditures.”

For many companies, acquisition is a powerful tool for growth when organic growth stalls. In today’s market, strategic acquirers are pursuing acquisitions in order to grow their business in the future.

If you’re facing a similar situation, proactively considering strategic acquisitions is a wise move. You may be growing this year, but what do your growth prospects look like down the road in five or ten years? Being proactive, rather than reactive, will put you a position that allows you to choose what you want. You will have more flexibility in considering the best acquisition prospects that meet your criteria and have more time to develop and execute your plan. Waiting until the last minute typically makes the process more difficult and limits your options.

Another trend to watch out for is cost cutting, which remains one of the main reason for executing deals in today’s market. While cost savings can be a legitimate reason for acquisition, I will raise a cautionary flag. Cost cutting is rarely a long-term growth strategy. You can only reap the benefits from cost saving synergies one time. Once you’ve trimmed the excess – closed a plant, realized tax savings, consolidated general overhead expenses – you have to ask yourself, “What’s next?” Strategic acquirers should remember to consider acquisitions in context of their overall growth strategy.

Many people begin pursuing M&A by listing possible companies to buy. But there’s a far better approach when you’re planning an acquisition.

While a prospect company may look exciting today, a closer inspection can reveal it is operating in a a shrinking market. If you’ve invested all your resources pursuing one company only to find its future growth prospects are dim, you’ve unfortunately wasted lots of time and effort. You have to return to the beginning of the process and start all over again. This situation is all to common in my experience, which is why I recommend looking at markets before looking at companies.

The main benefit of a “markets-first” approach is that it allows you to identify and follow future demand. What your customers or potential customers will want in five or even ten years is key to any company’s success.

Learn more about the “markets-first” approach in our upcoming webinar,”How to Pick Top-Notch Markets,” on June 18.

View our full webinar calendar.

“I always take control, but I did not buy 51 percent. Control doesn’t have to be 51 percent. I think people get confused by that.” Marcus Lemonis comments about minority investment on Squawkbox are spot-on.

When asked to elaborate, he explained, “I just document everything: full financial control, full operational control. I can have 10 percent [invested in a company]…and I’m still going to [run it]…”

When I speak with executives or owners about minority investment as an option, I usually hear the same pushback: We don’t want to do minority investment because we want to control the business. Well, as Lemonis’ comments demonstrate, control and minority investment are not mutually exclusive. You do not need a majority stake or 100 percent acquisition in order to have control.

Perhaps you do not have sufficient funding to acquire 100 percent of a company, or you would like to diversify your investments. You may still be able to use minority investment to achieve your strategic goals. Find out what parts of the business are important to your growth strategy and write them into your purchase agreement. Perhaps you need full control over one specific product line of the business. Make sure to document your desired level of control in the agreement.

Another idea is to build an option for purchasing further shares or a complete buyout into the agreement. You can even make this option contingent on specific performance conditions.

Minority investment is one of those pathways to growth that’s often overlooked. Don’t let this opportunity pass you by because you have misconceptions about “control.”

Check out Lemonis’ full interview on Squawkbox.

Related posts:

“How often do you get involved in a situation where a company is pursuing a ‘usual suspect’? And how do you handle it?”

This question was asked after Capstone’s presentation on “How to Pick Top-Notch Markets” by Project Manager Matt Craft and Managing Director John Dearing at the Virginia Economic Development Partnership’s VALET spring meeting.

This is an excellent question because the situation is extremely common. A “usual suspect” is a company that easily comes to mind because you already have an existing relationship. It may be a supplier, competitor or industry partner or it may be a company owned by your CFO’s sister. Naturally, because “usual suspects” are the easiest prospects to find, many companies begin their M&A search with them.

There’s nothing wrong with looking at them, but because of your pre-existing relationship it may be difficult to remain objective. In addition, we find that many times clients are only considering one familiar company and no other options.

When studying a usual suspect, we recommend taking a step back to remain strategic and objective throughout the M&A process. Use strategic criteria to objectively assess the company. How does the company align with your strategy? Is it really a good fit? Or have you been blinded by love?

We also recommend considering at least two other companies so you have three options for the sake of comparison. Without a comparison, by default the usual suspect will be the best and only prospect. If it’s truly the best prospect, it will withstand the scrutiny of criteria and comparison to other companies. You may even find that one of the other options is actually a better fit for your company

We know it’s difficult to say “no” to the usual suspect, especially if you have your heart set on it, but remember, acquisition is a huge undertaking. You cannot afford to make a decision based on emotion or incomplete information. Consider multiple options and use strategic criteria to make the best decision about your acquisition prospects.

Related posts

Learn more by attending our webinar “How to Pick Top-Notch Markets.”  Click here to register.

Mergers & acquisitions are a major strategy for corporate growth. Yet, they are an inherently risky undertaking for any business leader. Research studies indicate that up to 70% of such deals fail to meet stated objectives, and of those, 50% will destroy shareholder value.

A number of the “softer” or human capital areas, such as cultural differences and poor communications are often held accountable for acquirer’s less-than-stellar M&A success track record. However, new research quantifies the reality that leadership is a foundational element that determines M&A success.

Seminal research, published by Dr. J. Keith Dunbar in a recent issue of Harvard Business Review (“The Leaders Who Make M&A Work” )  has shed light on the specific set of leadership skills to predict M&A success—for targets and acquirers. This research—for the first time quantified the impact of collective leadership on the ability for a particular M&A to succeed…or fail.

Join us for a new webinar led by guest presenter Dr. Dunbar on April 16. In this informative and interactive session, Dr. Dunbar will delve into this groundbreaking research and explain why leadership—specifically collective leadership capability—is critical to acquisitions and must be explored during due diligence and integration for deal success.

After this webinar you will learn:

  • The role of leadership in successful M&A from a new, research-based perspective
  • Leadership skills that predict M&A success for both acquirers and target companies, and their impact on financial performance
  • Why companies should adopt this new methodology during M&A due diligence
  • Application of M&A Leadership Framework and M&A Leadership Risk Assessment to due diligence and integration in M&A

Date: April 16, 2015
Time: 1:00 PM ET
Registerhttps://attendee.gotowebinar.com/register/2507428935198021377

Can’t attend this webinar? Sign up anyway and we’ll send you the recorded archive.

CPE credit available.

Click here for more information and to register.

About the Presenter

Dr. J. Keith Dunbar is the author of “The Leaders Who Make M&A Work” and CEO and Founder of Potentious, an M&A leadership consulting firm.

Dr. Dunbar serves as Director of Talent Management at Leidos, supporting more than 23,000 employees. Prior to this role, he was Director of the Leadership Academy and Global Learning Solutions Group with the Defense Intelligence Agency. Dr. Dunbar retired from the U.S. Navy in 2006 after a celebrated 21-year career in naval intelligence. He received his Doctorate of Education from the University of Pennsylvania in 2013.

“We have a strong vision and a clear plan for growing the company in the future,” Sarah, the CEO, told me with complete confidence during a recent strategy session.

Her CFO disagreed: “We have no vision.”

Various members of her executive team shared similar sentiments privately with my team and me. Many expressed anxiety; they had no idea where the company was headed.

So what had happened? How could the CEO be 100 percent confident while her team was plagued by doubts?

This scenario where the CEO has one vision in mind while others within the company have another is a classic example of a disconnect between leaders and their teams. The worst part of the misalignment is that the CEO thinks everyone is in agreement.

Differing perspectives about a company’s future can arise because:

  •  The vision has not been communicated clearly – Perhaps it was a simple communication issue. Either Sarah had not fully described her vision or the team was having difficulty understanding what she had told them. This could be solved by restating the vision and answering questions about the company’s future.
  • Disagreement over the vision – On the other hand, maybe Sarah did share her vision, but her executives disagreed with her on the direction of the company. In this case, it would be helpful to have an open dialogue about why people disagree. Perhaps Sarah was a visionary with a great idea that the executives couldn’t quite grasp yet. Or, perhaps she was too wrapped up in her own perspective and was missing warning signs that the executives could clearly see.
  • There is no vision – Sometimes, a CEO does not actually have a clear vision to lead the company forward, even if they think they do. Sarah’s ideas may not be fully developed, or her perspective may be unrealistic given the current market. In this scenario, the first step would be for Sarah to acknowledge the problem and work with her executive team to develop a strong vision for the company.

In this case, Sarah did have a vision but had failed to communicate it clearly to the rest of the team. And, most of the executive and management team was afraid to express their concerns with her. This is understandable. It can be intimidating to disagree with your boss! During the strategy session, we used our role as third-party advisors, and some proprietary tools, to facilitate a dialogue that clarified and deepened everyone’s understanding of the company’s vision.

Having these conversations is necessary for successful strategic growth. You can’t be successful if half of your team is lost or confused. If you find yourself in this situation, I encourage you to foster a dialogue with your team. Try an internal strategy meeting, writing down your vision statement and creating a culture where people can speak openly with you.

Because people can be hesitant to be honest with you, sometimes you might need to use an anonymous survey to get feedback.  Or to break through the communication barrier, you can host a strategy session facilitated by an outside third party, like the one we had with Sarah and her team.

Remember as the CEO or president you’re not single-handedly taking the company into the future. While you might be the leader, it takes a team to help a company grow and execute a strategy. Make sure everyone on your team is following the same path.

When you’re pursuing an acquisition, making meaningful connections with the right people at the right companies can be challenging.

Who is the right person to contact? How can you go about contacting them? And once you do get in contact, what do you talk about to capture their interest?

These questions are I frequently hear from company executives.

One client of ours received no response after contacting both the owner and the CEO of an acquisition target about a potential partnership. He put it this way: “We have our people talking to the same ten key contacts, but there’s little to show for all our efforts.”

While he knew the right person to speak with, he was still unable to open the door to begin a meaningful dialogue. It’s not enough to know the players; you have to understand how to approach them and how to keep them interested. Here are three common questions we hear and three answers to help you with your contact strategy.

1) Who is the right person to contact?

Typically in a privately held, not-for-sale acquisition you’ll want to contact the owner or owners of the company. You might also contact the company CEO, president or another executive. Usually this information is listed on the company’s website or some secondary source of information. But first, do some primary research with lower-level employees in sales or operations without disclosing your interest in acquisition. They can provide you with additional insights into the company so that you’re fully educated and prepared when speaking with the owner.

2) Why haven’t they called me back?

Was it something you said? Maybe. Or maybe they never received your letter or email. Unfortunately you may never know why they didn’t respond. This is why I recommend calling instead of sending a letter. It’s a lot easier to get feedback from a live dialogue and to gain deeper insights. You’ll at least know they heard your message through all the clutter.  This is also a great reason for having multiple target companies… there’s bound to be a percentage of owners who never respond to your invitations.

 3) How do you keep the target interested?

Your goal during a first call is to draw the owner of an acquisition target into a conversation. Don’t try to get them to sell their company over the phone – no one is going to do that! Instead keep them on the phone by demonstrating your knowledge of their company and business and your strategic vision for a partnership (whether that be 100 percent acquisition, joint venture, strategic alliance, or minority investment).

Our clients find that they may have trouble opening doors with the correct people, even if they are familiar with many of the players in their space. These tips should help, but speaking with owners does require a certain amount of expertise and practice. Even after 20 years of experience, we still hear the word “no” on occasion. Each contact you make with an owner is a link in the chain that could lead to a prosperous acquisition. Don’t ruin your chances for a successful acquisition by making preventable mistakes. Make sure you’re prepared.

You can learn more about contacting owners in our upcoming webinar: “The First Date”: Contacting Owners and Successful First Meetings.

Photo Credit: bachmont via Flickr cc

Acquisitions are one of the fastest ways to grow, but they do come with their own set of risks. Industry numbers show that about 70% of acquisitions fail, so executives are highly motivated to mitigate their risks when purchasing a company. This can be done in a number of ways.

Usually we think about hiring lawyers or advisors during due diligence who will uncover any skeletons in the target’s closet. If the target passes through due diligence without any red flags, we tend to think we’re in the clear in terms of risk.

In reality, if you wait until the formal due diligence stage to evaluate your risks beginning at due diligence, you are starting too late. By this stage you’ve already invested resources, both time and money, pursuing one deal. So it can be really hard to say “no” when red flags do appear.

In my experience, one of the best ways to mitigate M&A risk and increase your chances of success is by following a detailed and proven process. While this might sound simple, many firms embark on M&A without any written plan at all.

Let me use an example to illustrate my point.

Most companies have detailed HR manuals for hiring new employees that cover things like the job description, key performance indicators, salary and compensation, the interview process and onboarding once the employee joins the team. On the other hand, very few have an equivalent discipline when it comes to buying another company. The typical approach is more of a “we’ll know it when we see it.” Businesses just look for companies they might buy and then jump to evaluating their financials.

Companies typically pay far less for the people they hire, expect immediate results from them and can more easily dismiss them if they find it’s not the right fit. However, acquisitions cost millions or even hundreds of millions of dollars, take a long time to integrate and are very difficult to spin off if a mistake is made. If you think about it, it really makes no sense to pursue M&A without a detailed written system.

At Capstone, we’ve developed just such a process, the Roadmap to Acquisitions. It lays out each step, from developing the initial strategy all the way through to closing and integration. Our experience over the past 20 years has shown this process to be a key foundation to M&A success. Some risk is inevitable in every business initiative. The Roadmap is a sure-fire way to dramatically your acquisition risks to a minimum.

John Dearing, Capstone Managing Director, was asked to write an op-ed for the Credit Union Times about the ways that credit unions can find additional sources of non-interest income. I’ve included part of John’s article below:

Every industry faces change and the credit union industry is no different. Market developments and new regulations are challenging credit unions to find new sources of non-interest income in order to grow.

While it can be difficult to thrive or even survive in an unstable environment, change also brings opportunity. One option for credit unions is using strategic mergers and acquisitions.

I invite you to continue reading the article the Credit Union Times’s focus report on non-interest income: Using Strategic Mergers and Acquisitions to Adapt.

Once you’ve closed the deal on a new acquisition, what do you do about the brand? Keep it as it is? Replace it with your brand? Create a hybrid? Something else…?

The brand is one of the assets you acquire when you buy a company. It may be worth a lot. Or little. Or nothing. (It may even be a liability).

It’s important to recognize that a brand is much more than a name and logo; it’s the “meaning” of a company to its customers and stakeholders: the promise that it holds for them.   A major acquisition can change the meaning of the company you acquire — it can also impact the meaning of your own organization.

Join us for a new webinar on brand integration presented by Capstone Branding Advisor Jon Ward. Jon has served as a consultant and creative marketer for over 30 years, with clients ranging from one-person startups to billion-dollar corporations.

After this webinar you will be able to:

  • Discover ways to evaluate brand value
  • Expand your options for branding the newly merged organization
  • Create your own brand integration strategy
  • Plan your acquisition to obtain maximum brand equity

Date: February 19, 2015
Time: 1:00 PM ET
Registerhttps://attendee.gotowebinar.com/register/8799873507023879169

Can’t attend this webinar? Sign up anyway and we’ll send you the recorded archive.

Click here for more information and to register.

When it comes to integration, people often think equity ownership should determine their approach.

If they own 100% of the business, they should change all the target’s practices to their own.  In a strategic alliance where neither side can force the other side to do anything, they might not integrate any of the practices.

But really, equity doesn’t have to dictate the level of integration. You shouldn’t be asking what or how many changes you can enforce but about which changes are right to make.  Owning 100% of the company doesn’t mean you should make the business you just acquired just like you. One reason you bought this company may be that it is completely different from your own.

Let’s take a look at a recent transaction: Coach will acquire Stuart Weitzman in order to drive topline growth in high-end, luxury women’s shoes.

In this case, Coach will be very careful about what they change initially. Although Coach owns 100% of the company, they most likely will not force Stuart Weitzman to adapt to all of their practices during integration. If the company changes Stuart Weitzman’s brand, pricing, or selling model, they might just be killing the goose they paid a lot of money for.

In addition, Stuart Weitzman (the company’s CEO and creative director) will continue to contribute his creative talent to the company under new ownership. If you’re like Coach and talent acquisition is critical to your deal, you better have a good employee retention plan that makes sure talented employees like Weitzman are committed to staying with the company afterward.

We need to change the way we think about integration. Avoid a mentality that “the spoils go to the conqueror.” Rather, you should identify star employees and practices from the seller that are better than your own and recognize that as the buyer you might adapt some of these practices yourself.

Focus on what you’re trying to get out of the integration. Then your strategic outcomes will drive your approach, not the amount of equity