Done right, acquisitions create value and accelerate a company’s growth setting you up for long-term success. However, experience tells us about 77% of acquisitions fail. Deals often fall apart before they close or fail to generate their expected value. Here are three common reasons why acquisitions don’t work out and how you can avoid them.

1. Focusing on Financials

Acquisitions that are based purely on financial engineering rarely generate lasting value. Cost cutting will certainly help top-line growth, but you can only cut costs once. In the long term how will you grow revenue once you’ve cut costs? While many acquisitions do result in cost synergies from combining back office operations, this is should not be your primary reason for acquisition. Successful acquisitions are based on strategy rather than cost-cutting.

Another common mistake price-conscious acquirers make is to search only for cheaply priced companies. Often these companies are in distress, but because of the low price, the acquirer might be willing to overlook other critical issues such as liabilities or cultural issues that could affect the deal’s long-term success. While acquiring a healthy company today might seem more expensive, the chance for long-term success tends to be greater.

Solution: Strategy First

Instead of focusing on costs, smart acquirers focus on strategy first and all other factors second. Without a strong strategic rationale, you risk slipping into the 77% of failed acquisitions. Acquiring the wrong company is an expensive mistake and you would be better off if you had never done the deal in the first place.

2. Lack of Strategic Rationale

Acquirers who make this mistake tend to fall into one of two camps. Either they have no reason for acquisition or they have too many. With no reason for acquisition, you risk buying whatever opportunity happens to come along simply for the sake of acquisition and with too many reasons, you risk diluting your efforts. In both cases, without a single clear purpose guiding your acquisition, you risk acquiring a company that does not advance your growth strategy in a meaningful way.

Solution: Have ONE reason for acquisition

For each acquisition you pursue, you should only try to fulfill ONE strategic need. Trying to meet multiple needs means you may end up meeting none of them. Think about how you hire employees: if you have various positions in sales, accounting, and operations, you would hire three different people. In the same way, if you have multiple strategic needs, you should pursue three different acquisitions instead of lumping them into one deal.  For achieving a profitable result, be sure to select only one reason for acquiring a company.

3. Integration Challenges

Integration is incredibly tricky to master and there are many moving pieces to consider from operations to employees to branding to suppliers to customers. There is no one fool-proof way to seamlessly merge two entities into one and even the best integration plan will have a few hiccups.

Solution: Plan Early

Overcome this obstacle by planning for integration early in the M&A process so you can anticipate challenges, develop solutions and establish a plan for moving forward. Far too often companies think of integration as an afterthought, but the reality is if you are planning for integration on Day One after the transaction closes you are already too late. On Day One, you should already have developed an integration plan and begin putting it into action. Addressing integration early on gives you plenty of time to identify problems and opportunities, develop solutions, and create your 100 day plan. The first 100 days after closing are a critical time and you must move swiftly to implement your plan in order to be successful.

While this is by no means an exhaustive list, addressing these key issues can be the difference between success or failure when it comes to growing your business through strategic acquisitions. Make sure to learn from the mistakes of others.

Photo Credit: Roman Drits Barn Images

Companies that grow in meaningful ways always take on a highly strategic approach to growth. This is because focus produces results. Lack of focus is like wandering around without any purpose or any clear direction of where you want to go. While you may walk for many miles, you’ll never reach your destination. On the other hand, if you remain on target and stick to the map, you’ll make it to your destination in no time.

In theory this makes sense, but in practice, it can be difficult to say no to what seem like “good” opportunities. But even great opportunities can distract you from your strategy, and by attempting to be a jack of all trades, you’ll be a master of none.

Remaining focused requires a disciplined approach to developing your growth strategy and evaluating opportunities for growth. From time to time, take a step back from the day-to-day operations and reassess your company’s current strategy to determine if it still makes sense. What are your core competencies and how will you build on them? What does your business look like today and what do you want it to look like in the future?

Developing criteria to objectively evaluate growth opportunities can also help keep you on track. When analyzing an opportunity, ask the simple question, “Does this opportunity align with my company’s strategy? How?”

It is important to remember that growth does not always mean getting bigger or adding more business lines; in some cases, it means shedding non-core assets so you can focus on what’s most important. Recently in the news we’ve seen a number of companies adopt this strategy. P&G recently agreed to sell its Lindor brand to Hartmann Group as part of a strategy to sell 105 brands to focus on 10 fast-growing business segments. Conagra has also agreed to sell Wesson oil brand to J.M. Smucker, its private label business to TreeHouse Foods, and has spun off Lamb Weston in order to focus on its strongest consumer brands.

Although it can be hard to say “no,” in the long-term you will be better off. If you pursue too many opportunities, you’ll dilute your efforts and be ineffective. Instead, it’s best to adopt a disciplined and  method to take on a focused, strategic approach to growth.

Photo credit: rawpixel via Flickr, Public domain

You don’t have to “go big or go home” to successfully grow your company through M&A. A small, well-executed acquisition that targets a specific need can sometimes be more powerful than a multi-billion dollar consolidation. Let’s take a look at a recent example from the news.

Earlier this month, Conagra announced it would acquire Thanasi Foods out of Boulder, Colorado. Founded in 2003 by Justin “Duke” Havlick, Thanasi is a privately held company with less than $20 million in revenue and sells two products: Duke’s meat snacks and Bigs sunflower and pumpkin seeds.

On the other hand, Conagra is an $11.6 billion company with an established product portfolio which includes brands such as Marie Callender’s and Healthy Choice. So why is Conagra purchasing such a small acquisition? Conagra needs more SKUs, especially value added or “premium” products that will deepen its relationship with customers like Walmart, which is Conagra’s top customer.

Although Thanasi is a small company, its products already have some traction and customer approval in the marketplace. Duke’s and Bigs are sold in 45,000 retail locations and are in fast-growing segments. Depending on how you look at it, Duke’s and Bigs is a compliment or competitor to Conagra’s Slim Jims and David-branded seeds. Essentially Conagra is purchasing a form of proven R&D to run through their pipeline of customers on a larger scale.

Acquisitions don’t have to be huge to be significant. Especially in the middle market, a carefully planned, small, strategic deal can exponentially grow your business and help you reach your goals. Meaningful transactions are those that help your company become increasingly focused and effective, so don’t get too caught up in the numbers.

Photo Credit: Graham Cook via Flickr cc

“We did an acquisition about 15 years ago. It did not go well…I guess you could say we are still ‘recovering,’ the CEO of a family-owned business recently shared with me during a meeting.

She went on to explain there were a number of integration issues and other challenges that cropped up post-closing that the company was not prepared to handle. From payroll issues to disgruntled employees to operational challenges – the experience was “traumatic,” for the organization according to the CEO.

Fortunately, the company is in a better place today and is ready to explore new ways to grow. While leadership recognizes the potential of a strategic acquisition, because of their previous experience, they are, understandably, hesitant.

It’s not uncommon to have this reaction. But just because an acquisition didn’t work in the past, it doesn’t mean you have to abandon M&A as a tool for growth. You can learn from what went wrong last time and be successful when executing future deals.

There are many reasons deals fail from culture clashes, hidden liabilities, poor planning, or simply inadequate of expertise, but these issues point to one overarching reason for acquisition failure – lack of strategy. Alarmingly, many companies take on a reactive approach to acquisitions, buying whatever company comes their way without first developing a strategic plan. Not having a plan is a surefire way to fail.

In the case of our family-owned business, they decided to take on a strategic approach to M&A this time around. Unlike last time, where they adopted a “plan as you” approach to M&A, they dedicated serious resources to establishing a strategic plan for acquisition prior to even looking at companies. This included identifying potential integration challenges and developing a 100-day post-closing plan long before the deal closed to avoid the same issues as last time. With a firm foundation the company was able to identify the right opportunities for growth and execute a successful transaction.

If you are still suffering from the results of a failed acquisition, I encourage you to adopt a strategic approach right now. Gather your team together to review your growth options in light of your overall strategic vision. Then, you can determine your next steps whether its organic growth, external growth, minimizing costs, exiting a business, or doing nothing. With a strategy in place, you will avoid many pitfalls and maximize your chances for success.

You’ve developed your strategy, identified the right markets, negotiated with the owner and papered the deal. If you think once you sign on the dotted line your job is done, you are mistaken. The M&A process doesn’t end when the deal closes. M&A is really a journey “from beginning to beginning” where the consummation of a deal is actually a fresh beginning for the newly merged company. Ensuring the pieces of both organizations mesh the correctly during integration is crucial to the success of an acquisition.

Poor Integration Can Ruin An Acquisition

Integration issues can plague a company long after the deal closes. Take United Airlines as an example. Although it’s been five years since the merge with Continental Airlines, the company is struggling to integrate its workforce. United’s flight attendants are still operating as if they worked at two separate companies, which has created operational challenges, damaged employee morale and company profit, and created unnecessary complications. Since the merger, about six percent of United flights have been delayed due to issues such as crew scheduling or maintenance problems. Understandably employees are frustrated. The failure to integrate effectively has eliminated the synergies – such as economies of scale and scheduling flexibility – that one might derive from having a larger workforce.

Why Do So Many Companies Struggle with Integration?

Leaders tend to think about integration as an afterthought, when really they should begin thinking about integration long before the deal closes. When it comes time to implement, they are “suddenly” faced with unanticipated challenges that could have been avoided or planned for had they started looking at integration earlier.

“What almost always gets underestimated, though – and often overlooked altogether – during due diligence is the actual integration of the new capabilities and how (or whether) it will work,” says John Kolko, Vice President of Design at Blackboard.

And as Kolko points out, if you don’t begin thinking about integrating prior to closing the acquisition, you may end up acquiring something that isn’t aligned with your strategy.

When you start thinking through integration issues and what the newly merged company will look like, you can get an idea of if and how the acquisition will operate post-closing. Will you let the company operate as a standalone business? Will you train employees to use your sales system? How will you leverage a new capability with those you currently have? Use your strategic rationale for acquisition to guide your decisions on integration.

Develop a 100-Day Plan

Thinking about integration early also allows you to be prepared and swiftly implement your plan once the deal closes. As the buyer, you only have one chance to make a good first impression with your new employees. The first 100 days of an acquisition are a critical time period when employees are less resistant to change. You have a unique opportunity to make sure everyone is in alignment during this time. Develop a 100-day plan prior to closing so you are not scrambling to put something together when it comes time to execute.

Photo credit: David Goehring 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.

The more reasons you have to buy a company, the less you should want it.

This may sound strange. After all, isn’t it best to be efficient and kill two (or more) birds with one stone? Since acquisitions are rather expensive, shouldn’t you get your money’s worth?

Endless Possibilities…Zero Results

It can be tempting to think this way, but experience shows that multiple reasons for an acquisition lead to multiple reasons for failure. In theory, meeting many needs through one acquisition sounds good, but in actuality you risk fulfilling none of them. With too many reasons for acquisition, your strategy becomes hazy, unfocused, and diluted. You move forward without a clear direction or purpose, which can lead to buying the wrong company, and to problems with integration.

Take the AOL-Time Warner merger as an example of an acquisition gone wrong. The executives praised the deal in a press release, saying, “No company will be able to better capitalize on convergence of entertainment, communications, and commerce. The possibilities are truly endless.” Unfortunately “endless possibilities” translated into a historic failure: the grand marriage collapsed. Continue reading this post on AMA Playbook.

*This post was originally published on AMA Playbook. Visit David Braun’s author page to read all of his articles.

“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.

Are you unusually busy? If you’re like most people the answer is yes! With the holiday season upon us, we are most of us inundated with commitments to work, family and friends.

While it might be easy to get caught up in the bustle of the season, I recommend pausing to plan your growth path for the New Year if you haven’t already done so.

Envision the big picture first. What are your long-term growth goals? We always encourage our clients to think about their dreams. Don’t be afraid to dream big for your company. Once you’ve defined the vision, you can break it down into manageable pieces such as specific goals for 2015 or goals for the next five years.

Plan out actionable items — initiatives you will undertake to accomplish each goal — and then identify and assemble the necessary resources. Each initiative should bring you one step closer to your growth objectives. You don’t have to have all the answers right now, and your plans may change, but this will help you stay focused and organized next year.

Of course, you may be well ahead of the curve with your strategic planning. But in case you haven’t begun planning for 2015, now is your chance to think about your next stage of growth before 2014 comes to a close.

Have a question about leadership and strategic planning? Contact us today.

On our blog we often talk about the strategic rationale of acquisitions and the mechanics of planning and executing M&A. But after an acquisition is completed, how does M&A affect your company and what is it like to run a newly merged entity?

As a third party M&A consultant I have learned best practices from years of facilitating deals for clients, I am happy to offer my perspective, but I’m sure many of you would be interested in hearing directly from the CEO or owner of an acquiring company.

In October, a group of about 20 CEOs, CFOs and senior-level executives from the Washington, DC metropolitan area did just that. One of our clients, CEO Kirk Drake of Ongoing Operations, presented at “Grow or Die: A Midmarket Panel Discussion,” the second event hosted by Capstone and Access National Bank to foster education and discussion about M&A among executives.

Kirk has lead Ongoing Operations through three acquisitions: CU Recover, Teneros and Cloudworks.  Through these acquisitions and organic growth in the past nine years, Ongoing Operations has grown from serving a handful of local organizations to over 500 clients nationwide.

Kirk described his company’s experience of growth through M&A and their plans for the future. Most interestingly, he addressed how Ongoing Operation weathered unexpected challenges after its most recent acquisition and how it developed solutions for success.

These lessons learned provided valuable insights for the CEOs in the audience. Tips included developing a plan for communicating with your board about the acquisition, taking more action to keep decision-making objective during the M&A process and suggestions on how to handle cultural differences that arise during integration.

CEO Mike Clarke of Access National Bank provided insights on trends in lending and financing, and I offered an overview of middle market M&A. My hope is that these events will inspire executives like you to seek out opportunities for growth and to think more creatively as you craft your growth strategy.

Entrepreneurs rarely face the challenge of having too few ideas. In fact, like most entrepreneurs and business leaders you probably have a multitude of great ideas for growing your own business.

Your biggest challenge may be figuring out which of all the alternatives is the best way to get from where you are now to where you want to be.

We recommend using a systematic process to sort through all your ideas and create an action plan. Here are some steps in that process:

1. Think about your vision.

Where do you want your company to be in a year and in ten years?  All your initiatives should help you move toward this goal. If an idea isn’t helping you achieve your vision, then maybe you shouldn’t spend time on it.

2. Prioritize your ideas.

While all your ideas may seem wonderful, upon closer inspection you’ll likely find that some are more worthwhile than others. For example, if you envision taking your business national in the next five years, you may rate ideas that help expand your geographical presence more highly than those that do not. Use tools such as the Opportunity Matrix or Weighted Criteria or even a simple pro-con list to help you objectively sort through the possibilities and organize your thoughts. These tools will also give you the confidence that you are selecting the best and most important ideas for growing your business.

3. Get focused.

Without clear focus it’s difficult to move forward. If you’re all over the map, you won’t apply the time and resources needed to grow. Rather than diluting your efforts develop a plan focused on one goal and concentrate mostly on that. You can always modify your plan as time passes and your goals change.

4. Execute your plan.

As Nike puts it, “Just do it!” There comes a time when you need to move from thought to action. If you’ve done the upfront work on planning your growth strategy, don’t be afraid to pull the trigger.

By following these steps you’ll identify the ideas that will help you create a pathway for growth.

With a 70% failure rate for acquisitions, it seems like the odds are against you from the beginning. Before you get scared off, however, let’s take a closer look at what that 70% means.

The 70% failure rate is mainly based on large, publicly traded transactions because large transactions must be reported to the SEC, and information on public companies is generally available. In addition, these large transactions tend to make the news more often since people are fascinated by massive deals involving well-known brands.

Despite this focus on large acquisitions, there are hundreds of smaller, unreported transactions involving middle-market companies and privately held businesses.

We call these types of deals “taking small bites of the apple.” Instead of huge, transformative deals, which tend to be a bit difficult to swallow, smaller, strategic acquisitions achieve a higher rate of success.

Acquisitions are a powerful tool for sparking growth and may be the only way for you to reach your goals. Acquiring smaller companies does not completely eliminate your risk, but conducting multiple, smaller acquisitions, enables you to take manageable steps to executing your growth strategy.

As with any business initiative, you must take some risk to reap the rewards. Following a carefully planned strategy and a proven process will help minimize your risk and optimize the success of your acquisition.

Are you looking for more ways to grow your business? Join our webinar with Mike Melo, President and CEO of ITA International, and learn how to use proactive, external growth to gain more business in any market.

This webinar highlights ITA’s journey in developing a successful acquisition strategy and growth program using the Roadmap to Acquisitions.

ITA, a global service company providing maritime and equipment primarily to the Department of Defense, encountered a harsh market environment during sequestration in 2013. Through the initiative, the company developed a proactive plan for growth. Employing careful research and our rigorous, proven process, Capstone and ITA identified over 100 acquisition prospects in a new, expanding market: Oil and gas. While the oil and gas market grows, so do ITA’s opportunities.

Hear this exciting story and learn about best practices and tools that you can apply to your own business.

Date: October 22
Time: 1:00 PM
Cost: FREE!
Register: https://www3.gotomeeting.com/register/980243222

John Dearing, Capstone’s managing director, presented a webinar on “How to Grow Your Business: Mergers and Acquisitions” on September 24 to a group of Bucknell students and alumni.

Recognizing a rising interest in business growth and mergers and acquisitions, Bucknell Alumni Career Services invited John, a 1991 graduate, to share his expertise with his fellow Bucknellians. His webinar covered the M&A process as well as best practices, strategies and tools to help with executing acquisitions. John also urged developing a strategy and vision before executing acquisitions to increase the likelihood of success.

For those interested in company growth and M&A, this new webinar will serve as a resource to further their education.

To view the webinar, please click here.

Deferring to advisors during the M&A process can be detrimental to a company, as evidenced by the back and forth over Valeant Pharmaceuticals’ unsolicited $53 billion bid to acquire Allergan, the maker of Botox.

The maneuvering over the past several months has become heated and off-track. Or as the Deal Professor column puts it:

“Some smart lawyers, bankers and executives appear to be so consumed with outmaneuvering the other side that they’ve lost sight of what their ultimate goal is: the future of Allergan itself.”

This is why company leaders should be actively involved in the entire process rather than leaving it to lawyers, bankers or other external advisors. While these advisors are important, you as the company leader are the one who will execute your strategy, including growing through mergers and acquisitions.

In addition, if you find yourself in a position where you are trying to “outsmart” the other side, take a step back. This may not be the right partner for you. It’s okay (and sometimes best) to walk away from a deal when it’s not in line with your strategy.

Leading throughout the acquisition process and sticking to your strategy will keep everyone aligned with your ultimate goal: company growth.

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“The danger with a mergers-and-acquisitions boom is that chief executives could allow themselves to get carried away by the thrill of the hunt, reducing their focus on internal investment projects that might have a better chance of bearing fruit,” says the New York Time’s Dealbook column.

M&A activity has reached record highs and shows no signs of slowing. The $2.2 trillion in announced deals globally this year is an increase of 67% over the same period a year ago. This may be good news, but there are accompanying risks.

More mergers and acquisitions typically are a positive sign for the economy, but as activity increases so does the number of failed acquisitions. Executives can make irrational deals driven by excitement or pressure for acquisitions rather than strategy, because cheap capital is available or because others are executing deals.

This year we’ve already seen the failure of a few large acquisitions: Pfizer – AstraZeneca, Fox – Time Warner, Sprint – T-Mobile. Even completed acquisitions still may fall short of expected synergies.  We’ve seen a large number of tax inversions and consolidations, which are primarily driven by cost savings. This is concerning because once you’ve cut costs to become “leaner” and more efficient you have to employ another strategy to grow revenues. I’ve rarely found cost savings to be a strategy for long-term growth.

To further understand this phenomenon of irrational deal-making we can explore the M&A cycle that can be categorized into four phases.

  • Phase 1 – There are few mergers and acquisitions due to sluggish economic conditions.
  • Phase 2 – M&A activity increases as financing is readily available in an improving economy.
  • Phase 3 – Activity is robust: executives feel more confident about the economy and they execute more deals.
  • Phase 4 – The market is frothy and executives start making “dangerous” deals driven more by excitement and momentum than strategy. Premiums can rise to 100% in this final phase.

The excitement from the M&A boom in Phase 3 drives the onset of riskier deals in Phase 4 that are more likely to fail.

It’s natural to be enthusiastic about a deal, but avoid getting swept up in the excitement and acting on impulse without focusing on strategy. Following a proven, systematic process can help you objectively evaluate your M&A opportunities to make sure they are aligned with your growth strategy. I recommend you develop a strategic acquisition plan before you jump into searching for prospects or executing a deal. Using a process will minimize your risks, help you avoid making a bad acquisition, and increase your chances for a successful acquisition.

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Valeant Pharmaceuticals International is determined to grow through acquisitions.  Already actively pursuing a deal with Allergan, the maker of Botox, Valeant is reportedly seeking another contact lens company. CEO Michael Pearson said the company “will not be content to remain the No. 4 global player in the contact lens industry.”

Valeant has a history of acquisitions, and its present structure resulted from the merger of Biovail Corporation and Valeant Pharmaceuticals in 2010.

Over the past year, Valeant has made a number of acquisitions in pharmaceuticals, medical devices, and related fields.

Here are its most recently reported deals:

Valeant Pharmaceutical's recent acquisitions include Bausch & Lomb

Some of Valeant’s more recent acquisitions

Valeant makes about 25 deals each year. Some of them are large, although the majority are too small for financial reporting. This strategy is what I call “taking frequent small bites of the apple,” — in other words, making multiple, smaller acquisitions rather than pursuing only large transformative ones.

With smaller deals you can be more focused in the purpose of your acquisition, which generates results and minimizes risk. Smaller acquisitions can also be easier to integrate once the deal closes.

Once you’ve completed the first acquisition, you can take some time to adjust to your newly merged company. When you’re ready, you can pursue another deal to drive growth.

 

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Here’s a quick thought about the Abbvie – Shire transaction that’s received so much recent attention because of the decision to reincorporate in Ireland once the deal is completed. Tax inversions are in vogue and a hot topic in the media. While the tax benefits of an inversion certainly are important in this acquisition, that’s only half the story. The other side is more strategic.

AbbVie’s top product is Humira, an arthritis drug that will lose its patent in two years. That makes Shire’s portfolio of products very attractive, including its rare disease drugs. The acquisition decreases AbbVie’s reliance on Humira and bolsters its pipeline for future growth.

Choosing the best option for growth.

More often than not we find our clients have too many choices rather than too few. The difficulty lies in prioritizing options and determining which one is the best path forward.

You may find yourself in a similar situation. With so many options how can you choose?

Although it may be tempting to tackle this challenge by deeply analyzing each option, first take a step back and evaluate your own business.

  • What is your core competency?
  • What are your current capabilities?
  • What are you strengths and weaknesses?
  • What is your vision for the future?
  • Where do you want to be tomorrow? In a year? In five years? In 10?

This self-evaluation is critical in determining your best options for growth. After all, if you don’t know where you are going, how can you possibly select the right path? With the foundation set you’ll have a clearer idea of which options will actually help you meet your goals and take your business down the right path.

Pharmaceutical companies are using acquisition to become “pointy,” or more focused.

Two recent examples are Bayer and Merck.  Bayer is focusing on over the counter medications by acquiring Merck’s consumer care business for $14.2 billion. On the other hand, Merck has become more streamlined through divestment.

As I’ve mentioned before, although divestment means becoming smaller, it can be pathway to growth. By trimming and pruning your company, you return to your core competencies and can more effectively focus on long-term strategic growth.

Not only are pharmaceuticals becoming pointier, they are also becoming bigger through consolidation. According to Bloomberg, there were $118 billion in healthcare deals announced in April 2014 compared with $175 billion in deals executed in 2013. By acquiring scale pharmaceutical companies can sell more products and have better leverage for negotiating with customers.

 

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