November 9, 2019 at 7:08 pm #99239
Companies look for smaller acquisitions to either gain access to technology, broaden its service offerings or for entry to new markets. Small firms agree to be acquired as they get access to capital to further grow and leverage acquirer brand and customer base to expand their footprint.
Should there be a different M&A integration playbooks as per deal size? What should be the target operating model to integrate smaller businesses yet not dilute their technology know-how and growth?November 10, 2019 at 4:40 pm #99309
I work for a company that acquired a technology firm. We made it clear prior to integrating that we would “let booj be booj”. It is now more than a year later and the acquired company has retained it’s location (rather than integrating in HQ), retained it’s brand, all employees, and has the autonomy to run the business with the two original owners. This has proven to be a huge success as our two cultures are vastly different. They know technology much better than we do at HQ and they are often brought in as trusted advisers on other technology needs. Meanwhile, our IT/Product team works daily with the organization to ensure alignment across the companies and to effectively communicate new offerings with our membership. Creating this difference was not necessarily due to the size of the company acquired, it was primarily a decision made because of the unique cultural differences that made sense to preserve. Had we forced the culture of the acquirer on the target, I believe it would have been a much more difficult process and we would have seen turnover, as they were able to successfully recruit highly technical individuals who were attracted to the business model that was already in place.March 20, 2020 at 6:05 am #108752
Small businesses have unique aspects that require special consideration when merging or acquiring compared to a larger transaction. Maintaining a brand’s uniqueness when being integrated is possible to the degree its uniqueness is derived from its independence.
If it is highly derived from having independence, then a key aspect producing the uniqueness is restricted. In these cases value may be captured for a period as it diminishes. The length and severity of the diminishing period can be impacted by several aspects which can include:
• Culture. By installing cultural strong protection and systems around the target, culture shock can be reduced to a minimum, allowing a longer dispersion timeline of brand uniqueness benefits. As Corynne, mentions above having separate locations was a good buffer for maintaining culture.
• People. With a small business, much of the brand’s value or uniqueness may be attributed to fewer key people. Change management may require greater investment for retention programs and to address the increased power of key people.
• Firm Structure. By setting up the organization in a way that extends as much independence as possible, the curve for useful value from brand uniqueness is extended. Leaving some functional areas un-integrated could be preferable, especially in the near term if they have material implications to the brand.
• Marketing, Branding, Sales and Customers. The marketing efforts can support maintaining the brand individually. Customers can be approached while maintaining different groups, with separate offers, and bidding or sales processes. Although this approach reduces cross-selling and product portfolio combination benefits, if the branding is a priority and the situations specifics, it may be advantageous.
These and other factors, along with those specific to the situation can impact how much of the value from a brand’s uniqueness is captured by a new parent company.
Making the transition to an investment grade company is a challenge that many small business don’t make before a transition. For a prudent buyer, this represents risks and costs that need to be accounted for in the price of the business, or other areas of negotiation.
Along with other activities, running the due diligence process in reverse with consideration of buyer-market motivations can provide the start of a roadmap for a closely held company to position more rapidly, or in a higher value way, for an institutional transfer channel. This could include building the brand in a way that does not derive its value significantly from the company’s independence, or a multitude of other means.April 18, 2020 at 10:39 pm #109495
Paul Gray, MBAParticipant
Each acquisition though seemingly similar will require a modified approach to integration or better yet its own playbook. As businesses evolve through time, they take on personalities to ensure their abilities to navigate and compete in their respective industries. These we often refer to as their culture or their identity…the thing they are known for. In some cases, the acquisition and dismantling of a brand can severely affect the expected synergy gains from an acquisition. In other cases it can translate into significant synergy gains. Understanding the brand and value of a target’s brand is important as inherent in the brand you will find goodwill and disruption or diminution in that brand can destroy value completely.
As Corynne indicated from her experience, the brand of the target was allowed to survive, with one consideration being the difference in the cultures. Additionally, the management team was allowed to remain intact which was a demonstration of the confidence in both the management team and brand they had built to date. This undoubtedly acted as motivation for a shared vision of the future allowing the management team to break new grounds to the satisfaction of the acquirer.
So in summary, the playbooks will be different for most acquisitions, however the complexity will vary depending on the type and nature of the business model.
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