The Greatest Risk You Face in Acquisitions

When you acquire a company, the biggest risk you face in the unknown. You put a potentially large sum of money down for results that are not guaranteed. Whether you are acquiring a company for a new technological capability, to expand your geographic footprint, or for its complementary product line – there’s always the possibility that the transaction won’t yield the desired results or that it will cause problems and even hurt your company.

In the news we hear about bad acquisitions and there is an entire book, Deals from Hell, that recounts exactly what went wrong in many of these high profile transactions. Acquisitions are inherently more risky than hiring a new employee that you could fire if you find it is not working out. Once you acquire a company, it is yours, and you’re not going to be able to “fire” it.

If Acquisitions Are Risky, Why Acquire?

If acquisitions are so risky, then why do companies do them? If done right, acquisitions can bring about great rewards and next level growth to your company. M&A is inherently a high risk, high reward tactic, but you can take steps to reduce your level of risk by using a proven M&A process. A proven process will help you identify the right acquisition so you can maximize your opportunity for success.

The Roadmap to Acquisitions

Think back to the example of hiring a new employee. Your HR department probably has a manual with a process for job posting, interviewing, and onboarding employees in order to ensure they are a good fit at your company. As we mentioned earlier, although you expect results from your new employee, if you find it’s not working out, you can always let them go. Why wouldn’t you have a process for acquisitions as well?

The process we use is the Roadmap to Acquisitions, which we developed from over 20 years’ experience helping clients grow through acquisition. The Roadmap takes a holistic perspective on the acquisition process, beginning and initial strategy all the way through deal execution and integration planning. I highly suggest using an M&A process or having a strategic plan before you begin pursuing acquisitions. This will help your reap the rewards of M&A while reducing your exposure to risk.

Photo credit: Derek Gavey via Flickr cc

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