Over the course of many years of domestic and international business growth strategies, in particular ones that incorporate a Merger or Acquisition effort, there have been many repeated mistakes companies demonstrate in their business activities. In a simple phrase, companies that initiated an M&A strategy have as much success or failure as if they are shooting craps at a casino.
Why is M&A success such a crap shoot?
The simple answer is that few organizations pay particular attention to the post acquisition or merger integration process which increases greatly the odds of success in rolling the dice when performing M&A activities.
How will the deal actually work once all the paperwork is signed and everyone goes to work?
Large companies snap up innovative companies only to drive them into the ground. Why does this happen? It occurs for a number of reasons that entire books and academic courses globally have and continue to discuss and debate. Nevertheless, there a few reasons that can be highlighted in this brief presentation.
First, the elimination of competition by the “buyer” in the marketplace stops the erosion of the “buyer’s” market. This occurs when the “seller” or innovative company starts to win sales or service orders from the large company or “buyer.” The large company considers this a threat to their market/margin and decides it is time to eliminate the competition or as some “self appointed” industry experts will tell the large company that purchase or merger of the innovative company will add new life or products or services to the large company. The purchase will not only help preserve the large companies market share but is going to expand its market share with new types of customers that the innovative company is selling and servicing now.
Second, these large companies tend to buy those smaller innovative companies to increase the large company’s share price or overall market valuation. The large companies simply cannot move fast enough, nor do they necessarily have the right talent, and they are saddled with the “not invented here” syndrome. There are many large entities that have legacy engineering, research and development, scientific teams and sales and marketing teams that continue to purport that what was successful historically will be successful in the future for the large company.
Third, an established large company that has products and services that are “standard” or some would say commodity-based in the market place will believe that the purchase or merger with an up and coming “high tech” will improve the large company’s sales growth strategy and increase profit margins. The problem is that the large company generally does not have the people resources to understand let alone embrace the “high technology and incorporate or integrate the new tech/service with their existing platforms that have been proven to be historically successful. A true definition of business insanity unfolds. Doing the same thing but expecting different results!
So when the large company buys the innovative company, what happens next is often interesting. The old political silo-based mentality of the large company “good ole boy or girl” network tends to maneuver to head up the acquired innovative company. However, the person that heads up the new acquisition often has no background in the technology, pushes others out of the way, and as a result, innovation is stifled. The acquisition tends to go nowhere, because those innovators are considered a threat to that “new person” in charge. The bottom line is that when an acquisition occurs, a large number of them simply fail or fade into history. Historical figures suggest that M&A activities can have failure rates in the 70%+ range regardless of the industry or technology/service.
Credit on this blog goes to John Cellucci for his review, edit, and business insight.
https://www.linkedin.com/in/johnhcellucci?authType=NAME_SEARCH&authToken=S12E&locale=en_US&trk=tyah&trkInfo=clickedVertical%3Amynetwork%2CentityType%3AentityHistoryName%2CclickedEntityId%3Amynetwork_7640015%2Cidx%3A0
