9 Tips for an Effective Acquisition Strategy
Many CEOs try to time their acquisitions to favorable economic data: the proverbial “buyer’s market.” But BIG companies with a true growth mindset know that a well-defined acquisition strategy can pinpoint opportunities no matter what’s happening on Wall Street or what the latest CPI report says.
Incorporate these 9 best practices into your acquisitions to strengthen the process and prepare your company for a new level of Making BIG Happen.
1. Develop an acquisition playbook.
In general, there are two types of acquisitions: the Friendly kind, in which both companies recognize the benefits and work together towards a shared set of goals; and the Coercive kind, in which the acquired company goes along with the sale because … what choice does it really have.
Guess which type tends to go smoother.
As you’ll see below, there are many good reasons to target acquisitions that will align both companies strategically and culturally. But a Coercive acquisition can be just as effective as long as the buyer has clear objectives and a plan for achieving them.
For example, do you plan to let your acquisition keep operating as if it were an independent company, like Amazon and Whole Foods, and reap the benefits? Or are you planning, effectively, an “acqui-hire” that will bring top talent under your umbrella? And if acquisitions are going to be a significant part of your growth strategy going forward, is this process operationalized and repeatable?
2. Share a vision.
If you’re prepared to move ahead with an acquisition, you probably have a CFO and investment banker in place to help execute the transaction. But before anyone starts running numbers, the CEOs have to test for alignment.
CEO Coaching International’s Jim Weaver recommends a face-to-face where the CEOs talk through some simple but important questions: “‘Is there an opportunity for us to work together? Is there opportunity for me to help you better understand what we do and you to help me understand what you do to see if there’s some synergies there?” Not only can this type of conversation steer the acquisition towards Friendly, it will also establish a shared vision that will help unite both companies moving forward.
3. Ensure cultural compatibility.
“Bridging corporate cultures into a common core and allowing a bit of each to survive is important,” says CEO Coaching International’s Michael Maas. That’s going to be difficult – if not impossible – without the companies sharing some core values in the first place. An ice cream social isn’t going to turn an acquired company that’s all about profit into a new division that puts the customer first. Nothing trumps culture fit, no matter how BIG the numbers look.
4. Deploy your “red team.”
Are you so excited about the possibilities of this acquisition that you’re overlooking some obvious pitfalls? If so, then empower a “red team” to poke holes in your enthusiasm. Red teams are often used in cybersecurity, law enforcement, the military, intelligence agencies, and to a growing degree, in business, as a way to uncover blind spots. Empower your red team to poke holes in your deal strategy, the potential fit, and the new company’s ability to hit your long-term goals. An external perspective from your CEO coach can also help you avoid groupthink and ensure you’re targeting the right company for the right reasons.
5. Be strategic.
Companies that try to “buy growth” often end up with a bunch of pieces that don’t fit together. According to Jim Weaver, the “Why?” of your acquisition should be complementing existing organic growth, rather than attempting to accelerate from stagnation.
“It could be you’ve got this product or solution and you want to augment it in some way,” Jim says. “You could also do an acquisition if you’re looking for resources. A company might say, ‘We’re growing dramatically. We’re having trouble staffing some of the success that we’ve had, so let’s go out and find a company to augment our current capabilities.’”
6. Maintain internal continuity.
In a successful acquisition, you’re not just buying technology, inventory, and office space. You’re acquiring people as well. Make every effort to retain A-players who will enhance the new company’s culture and raise everyone else’s game. Sniff out any mercenaries who might stick around for a higher paycheck and “quiet quit.”
7. Communicate, communicate, communicate.
“It’s essential to communicate to each group of stakeholders the reasons behind the M&A and the value and associated costs it will bring to each group,” says Michael Maas. “Getting buy-in from everyone impacted is an important step toward optimizing benefits and minimizing costs, and leads to a more integrated outcome.”
Inside your building, transparency is key. If employees at both companies aren’t receiving regular updates, they’ll make up their own. Rumors and paranoia will turn your people on the deal before it’s done, kill productivity, and send some of your best and brightest out the door.
As for your external stakeholders, get your marketing team working on a new campaign that will reassure all current customers that the service, quality, and values they’re used to aren’t going anywhere. And once the ink is dry on the acquisition, be the visible, accessible leader that your employees, customers, board members, and shareholders want to see. Share a BIG vision that everyone who’s invested in your company will want to be a part of.
8. Be empathetic.
Employees from an acquired company often go through an accelerated version of the grieving process: mourning the loss of their old company and the old way of doing business; an in-between waiting period where the old company isn’t totally gone and the merged company isn’t fully integrated; and finally, starting over at the merged company.
Each stage can be mentally and emotionally challenging, especially if letting go involves saying goodbye to longtime coworkers who don’t have a seat on your future org chart. Again, clear communication is critical. But so is high-EQ leadership. Just asking people how they’re doing and how you can help them manage this transition can go a long way towards lowering the temperature and keeping everyone focused on the key tasks of the day.
9. Ask and answer, “What could get in the way?”
Even if you and your c-suite are confident in your acquisition strategy, it’s likely that your “red team” and conversations with your CEO coach have alerted you to some potential downsides. Develop high-level contingency plans that will protect your company if your target gets cold feet, or if a valuation turns out to be too optimistic, or if the cost of integration exceeds your projections.
At every step, the CEO should also circle back to another important question: “What do I want?” Maintain your focus on that ultimate vision of success and your next acquisition will be another key building block towards Making BIG Happen.
About CEO Coaching International
CEO Coaching International works with CEOs and their leadership teams to achieve extraordinary results quarter after quarter, year after year. Known globally for its success in coaching growth-focused entrepreneurs to meaningful exits, CEO Coaching International has coached more than 1,000 CEOs and entrepreneurs in more than 60 countries and 45 industries. The coaches at CEO Coaching International are former CEOs, presidents, or executives who have made BIG happen. The firm’s coaches have led double-digit sales and profit growth in businesses ranging in size from startups to over $10 billion, and many are founders that have led their companies through successful eight, nine, and ten-figure exits. Companies working with CEO Coaching International for two years or more have experienced an average EBITDA CAGR of 67.8% during their time as a client, nearly four times the U.S. average and a revenue CAGR of 25.5%, more than twice the U.S. average.