By Maurie Cashman
Capturing synergy is usually a critical factor when acquiring a business. Last week in Acquiring Value For Your Business we discussed some of the strategic reasons companies have for acquiring other businesses. I have been involved in many acquisitions, the most recent of which was the acquisition of DeJong Greenhouses by Dan & Jerry’s Greenhouse LLC. I have seen successful strategies and acquisitions that did not capture the promised value. Once you have completed an acquisition, how do you maximize the potential you saw when you made the acquisition?
Business owners can’t count on these synergies to just happen. As the Boston Consulting Group points out in its recent report, “Six Essentials for Achieving Post-Merger Synergies,” acquirers have to follow a “disciplined, pragmatic approach to pursuing merger synergies, from identifying and validating them to creating detailed plans with built-in accountability.”
Here are 5 things you should consider:
Have a Plan.
One of the most common failures in creating a smooth transition is the lack of understanding of what must happen immediately following an acquisition. Companies often get so wrapped up in due diligence and negotiations that they fail to plan for how they are going to manage the new company once closing is complete. A great deal of the synergies you worked so hard to identify can be lost if the acquisition stumbles out of the blocks. Once you have lost the opportunities they can be very difficult to recapture.
Have a Team
Selling a business is a deal like no other. Many entrepreneurs only go through this process once in a lifetime — so it’s crucial to have skilled professionals who know the ropes on your side.
For owners without any acquisition experience, an advisor is absolutely crucial. Not only do they have a specialized database of contacts, knowledge of business synergies and experience selling — or buying — similar businesses, but they allow an owner to keep some focus on running the business during a critical time. Deal making has been described as 50% economics, 50% emotion. An intermediary also provides cool-headedness during a sometimes antagonistic negotiation.
Attorneys are essential to executing an acquisition effectively. They usually provide advice on deal structuring and securities law issues. Lawyers are indispensable for drafting purchase or sales agreements for stock and asset sales.
Board of Directors
Private companies have no legal obligation to create a board of directors or advisory board. But that doesn’t mean they don’t need one. Some owners might fear creating a board is equivalent to relinquishing control. But smart leaders see their board as more than just a system of checks and balances. Successful companies rely on this engaged group of advisors to gain perspective, gut check decisions, and help chart a course for aggressive growth.
Tightly Link Due Diligence and Post-merger Integration
Once you have your plan and your team assembled, it is important to ensure a smooth transition between the due diligence team and the integrated planning team. It is important for department heads to have input into the targets and a say in whether they are feasible. You might put due some diligence team members on the integration team. You might assign heads of sales and HR to the due diligence team. Their role would be to help assess synergies function by function, to identify targets and strategies for achieving them.
Pursue Revenue Synergy as Diligently as Cost Synergy.
According to BCG, “companies plan and track revenue synergies with less rigor and transparency.” Revenue synergies are harder to track, and leaders view revenue synergy more as part of their day-to-day business.
The first step in planning and tracking revenue synergies is to define the term. You might define it as the increased revenues earned as a result of the acquisition over those the company would expect to earn had the acquisition not been completed.
Revenue synergies tend to come from products and services cross-sold from one company to the customers of the other; new products or services jointly developed by the combined companies; and what BCG calls “price and product-line optimization.” Define these as part of your acquisition plan and assign your sales team to develop a process to capture the planned synergies. You can achieve this through training on new products and customers, sales lead generation, elimination of overlap in account assignments, and new incentive systems.
Track Performance Throughout the Post-acquisition Integration.
Failing to systematically monitor progress against achieving synergies is common. When you see that you are hitting targets, you know that the acquisition is succeeding and that your assumptions were on target. To track performance, create roadmaps and milestones, determine when synergies should be achieved and identify risks.
With the right approach, you can beat the odds of a successful acquisition. By adhering to the five basics described here, you can realize cost and revenue synergies, realizing the value of the acquisition.
© 2017 Aspen Grove Investments, Inc.