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Result-oriented business combinations II

Discussion in 'Snippets of Life (Non-Fiction)' started by Viswamitra, Jun 16, 2012.

  1. Viswamitra

    Viswamitra IL Hall of Fame

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    [JUSTIFY]85% of the time, the acquisitions carried out don’t produce results that are intended. This is the statistics of deals carried out by large corporation. The due-diligence carried out prior to the acquisition is only one part of many actions that require lot of attention to details. Every time, when we do acquisition, we need to pay particular attention to the growth, profitability, cash flow, debt, ageing of the receivables, client relationship, employee relationship, business culture, quality of the products and services, the strength of the management team and their motivation to continue and so on.


    It is not often possible to review all of them prior to the closing of an acquisition transaction. Many times, the acquirer takes enormous risk in doing a transaction with the hope that it would work out fine after reviewing the business strategy, growth and profitability. When a deal maker brings the deal, they prove a point that the two companies together would generate higher revenues and higher profitability and therefore it makes business sense to do a deal. Unfortunately, it does not work that way. Many times, in business combinations, mergers or acquisitions, one plus one might be equal to three or minus three depending on how the two companies are put together. The success of the two companies working together well is dependent upon several factors including customers feeling comfortable to continue doing business with the new entity, employees motivated to continue working for the company, management team willing to continue to manage and grow the business, synergies clearly identified between the two companies up front, redundant operations are combined effectively without much of impact in the operations, cross-selling opportunities being identified at an early stage, customer retention plan is prepared and reviewed periodically and many other factors. A detailed integration plan needs to be worked out before an acquisition is completed and the people who need to implement that plan should agree to that plan and execute it precisely with due care and diligence.


    A period before acquisition is like dating prior to marriage and both companies get to know the best part of each other. The other side of both companies will be really felt only after the completion of the acquisition just like in case of a marriage. Similar to marrige, since people with different values are involved, we need to handle the relationship with due care without hurting each other. We have to build a culture to express the views freely and clearly so that all ideas are out on the table and encourage them to come to consensus as to how to execute them. Once a decision is taken, we have to advise them to execute the plan without any further deviations.



    Preparing the right acquisition strategy, finding the areas where the products and services need to be strengthened, geographic expansion into new areas, identifying the right investment bankers, reviewing the target companies carefully, present them to the executive management team and convincing them to buy explaining the strengths and weaknesses, visit the company and understand the spoken and unspoken details of the target company, making an offer that is acceptable to both sides, conducting a detailed due-diligence, reviewing the stock/asset purchase agreement with appropriate representation and warranties, non-compete, indemnification and the correct terms and conditions of the deal, negotiate an employment agreement with the required management team, etc. are only 50% of the effort. The real part of making it work as per expectation is in preparing a detailed integration plan, convincing the management team to execute, identifying the synergies, understanding the business culture of two companies, the client relationship and retention strategy, cross selling opportunities to create new business, motivation of the management team and employees, etc. This part is another 50% in making an acquisition successful. This knowledge is gained through experience and obviously sometimes this experience is learned from successes and failures. But shying away from doing it or doing it blindly will not help. A lot of them require strategic thinking and applying our common sense. I will present more case studies of my experience in the following blogs. [/JUSTIFY]
     
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  2. InnerBliss

    InnerBliss Gold IL'ite

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    Woww! So much to learn in one blog! I agree, it is the experience that is the best teacher in any profession. Thanks for sharing your precious experience.
     
  3. Viswamitra

    Viswamitra IL Hall of Fame

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    Dear Anu,

    Thank you for your visit to this blog and for your appreciative words.

    Viswa
     
  4. Pallavi4me

    Pallavi4me Platinum IL'ite

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    Viswamitra sir, again my favourite subject.

    I can go on reading on this topic. Its such interesting one to learn and understand about these mergers & acquistions and nitty gritties of it :)

    Thank you so much sir for sharing the knowledge with us.
     
  5. Viswamitra

    Viswamitra IL Hall of Fame

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    Dear Pallavi,

    You are most welcome. I am glad you enjoy reading these blogs.

    Viswa
     

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