Going about acquisitions - The right way

‘Consolidation’ is a word one hears far too often these days, in any industry or sector. With a constantly changing business landscape and industries getting disrupted, every company is looking at acquisitions or mergers to stay afloat.

However unlike a Bollywood movie, where, the same formula of two long lost brothers teaming up in the end to avenge the death of their parents works time and again – there are no formulas on what works and what doesn’t. Let’s look at the merger of AOL and Time Warner for example. It’s no secret that the merger failed; owing to one of the most common issues that crop up during a merger which is the failure at the part of the management to bring about the organizational and cultural change in a smooth manner. Change management isn’t a magic potion from a Harry Potter book. Nor is it something an HR team can put ad-hoc processes in place for.

The amount of monies being spent to acquire a company and to make that acquisition successful by bringing bankers, change management agencies, consultants on board can be mind boggling at times. With so much at stake, nobody wants a deal to fail. Still, it does sometimes. Why?

While writing a playbook on acquisitions isn’t easy, given the mindboggling number of variables - Today I’m sharing some of my learnings over the years. Some of them may seem basic or obvious but it’s the obvious things that are often easily forgotten!

·Double and triple check the why: Before zeroing in on an acquisition target, zero in on the reason behind looking at an acquisition. As yourself what the acquisition will add to your organization. Not only strategically but equally to your financial metrics? Sometimes, just having enough cash in the bank isn’t a good reason to go out shopping. Nor should it be an ego drive of becoming the largest in your industry or a way to add a glamorous vertical to your current mix. Remember a liquor magnate who wanted to rule the skies too?

Is the objective to gain market share? Or are you looking at adding new IP or products to your portfolio? Are you acquiring a skill set in a different area of expertise? Is it a move towards expanding your geographical footprint?

And if you get a clear answer to the questions above, ask yourself, will it be EPS accretive? Will it erode margins at all, temporarily or for a longer time? What is the net impact to your balance sheet? Only if there are sound answers to both sets of questions move on to the next steps.

· Look beyond the obvious: Deciding which company to acquire has its own set of variables attached to it. Once, the shortlist is ready, look at the sellers on the roster and map them back to the ‘why’ behind your decision to look for an acquisition in the first place. The fatal mistake people make at this stage is getting so wedded to the acquisition target (by now they have spent enough time talking to prospects and building bonds with some of them) that they try and force fit new reasons on why it is makes for a great union rather than sticking to the original need.

When it comes to an acquisition, there are people involved and more often than not it’s the integration of values, vision and people that makes or breaks an acquisition. At this stage it is very critical to look at the culture fit too

It’s like being an IPL team owner at the player auctions. Before going hammer and tongs at the auction to buy a particular player; the franchise owner, the coach and the captain ruminate about the player’s attitude towards the game and his current team along with the public persona. It’s not just the cricketing skills that work in a player’s favour but the other aspects too. If the softer aspects of his personality don’t match with the team’s, it could lead to friction and spoil the mood of the entire dressing room.

It’s the same when it comes to bringing in another company into the fold of your organization. Ensure both the companies have a shared vision. When Facebook acquired Oculus for less than what its management sought, it was a vision of collaboration between both the companies pitched by Mark Zuckerberg that sealed the deal.

·Check the goods before you go for billing: We’ve all been to a supermarket or our friendly neighborhood kirana store. Before you open your wallet to pay or even before you put the things down in your shopping trolley, the first thing after picking up a product is doing a thorough inspection to check the expiry date, packaging, etc.

Similarly, when it comes to acquisitions, be sure to go through every skeleton in the financial closet, examine the debt being absorbed, the impact it will have on your business and the other financial details. Again due diligence is about being diligent and not just ticking the boxes.

·Know what to say to whom and how to say it: Ever spoken to a journalist? When you say acquisition, a journalist hears ‘numbers’ = BIG STORY! And if it is big news, everyone wants to talk about it and everyone has questions for guess who? You. Be prepared. A good communication strategy speaks volumes of the management and the leadership.

Acquisitions are a time of upheaval for everyone involved, especially the people of the company being acquired. For them, there’s a cloud of uncertainty hovering over them, full of questions about their future and what’s going to happen next. These questions vary from department to department, from a mail-room guy to a CXO level person. Everyone has their set of questions, doubts and worries.

People being the most valued asset of any company, a good communication strategy, customized to answer and reach out to everyone involved at every level ensures there’s no room left for any sort of miscommunication and leaves no doubt in anyone’s mind. When RadioCity was being acquired by JPL, months before the culmination of the deal, we had started talking about the fact. Transparently and honestly we discussed both potential upsides and downsides of the merger. We talked about what it would do for the business and for the individuals. We talked about financials, cultural nuances, and business changes as openly as possible. Without being dismissive or disrespectful about people’s fears, we ensured everyone’s concerns were heard and allayed. We continued to talk about the changes and the handling of them for one year after the merger. The lesson was that whatever communication you do is never enough. You need to talk, listen, re calibrate your communication, again talk again listen, till finally there is nothing left for people to ask!

Call it a beginners or a dummies guide to acquisitions; even after getting a number of smart people like investment bankers, management consultants, etc. involved, we see a lot of these deals falling through or not yielding the expected results. Sometimes, it’s paying extra attention to basic things that make a world of a difference. As Holmes would say it, “Elementary, my dear Watson!”