M&A is a core part of growth for any global enterprise.?Organic growth simply cannot scale fast enough, either internally or externally, without the complement of acquisitions.?The risk is, will the acquisition stick?
Pundits delight in pointing out that a huge percentage of mergers and acquisitions fail in achieving the returns used to justify them in the first place.?A big part of the problem is that executive teams routinely mismanage the assets they have so dearly acquired.?The reason is that there is more than one type of acquisition, and each type needs to be handled differently.?Get this right, and the road to returns is a whole lot easier to travel.?
The zone management framework
provides clear guidelines about how to manage different types of assets to achieve different kinds of returns:
Here are some asset types that show up recurrently:
- Technology exploration:?A small company that has technical expertise and intellectual property specific to an emerging technology you believe could have material impact on your enterprise’s future by virtue of future category power.?This company goes into the Incubation Zone.
- Technology tuck-in: A small company with products that have offer power, that can be annexed as line extensions to your current portfolio, and can be upsold and cross-sold into your installed base.?This company goes into the Performance Zone, reporting into the GM of the line of business it is extending.?Its go-to-market organization transitions as an overlay for one to two years, after which it is folded into the global organization.
- Product or market adjacency: A potentially large acquisition designed to create critical mass in a core category for your enterprise with good growth prospects.?This too goes into the Performance Zone, the intent being to increase your company power.?The challenge here is that you now have two management teams interested in leading a single converged entity.?This is not a stable situation, and it is normally not best resolved through compromise.?Instead, the CEO needs to appoint the GM most capable to lead future success and then deal with the personnel fallout to come.
- New category entry: The idea here is to change the market valuation of your enterprise by acquiring an asset that is independent of your current lines of business.?This is normally a bad idea, driven by market cap envy rather than increased customer success.?To succeed, the CEO must put this in the Transformation Zone and drive relentless support for it until the enterprise conforms to its new reality.?Typically, only a founder has this kind of clout, and historically most CEOs who have taken this path have failed.
- Tornado category posing an existential threat:?This has superficial similarities to a new category entry, but the dynamics are totally different because the environment is forcing you to take action or become permanently marginalized.?You must put this acquisition in the Transformation Zone and activate the “zone defense” playbook, subordinating all other priorities to getting this new entity integrated and up to scale.?Until that happens, your entire enterprise is at risk.?Ironically, this is a simpler situation to manage than the prior type because external threats make it easier get internal alignment.
- Mature category consolidation:?We in the tech sector have fallen so much in love with disruption that we often ignore other sectors of the economy where categories are stable, if slow-growing.?Historically, this is where M&A has been most successful.?The new business is brought into the existing franchise’s Performance and Productivity Zones where it is disassembled and assimilated into the existing organization.?Synergy is achieved through layoffs in the Productivity Zone and competition in the Performance Zone.?This is the playbook that investment banks best understand, and it is typically driven by leaders from the Productivity Zone.?It works up and until there is a disruption in the sector, at which point the enterprise is typically a sitting target, as it has long since parted company with its growth-oriented talent.
The most important takeaway from the above is the “horses for courses” approach to M&A.?Each of these integrations deserves its own playbook at the executive level.?The rest of the workforce will be impacted, to be sure, but here following good onboarding practices remains the top priority.?
That’s what I think.?What do you think?
Fahim Sheikh Lindsay Mohr Nedal Shahin, PMP? great post.
Territory Sales Manager at F5
2 年It is always a good idea to strike a balance between merging/acquiring activity and the organization's ability to absorb other organizations to achieve a synergy effect (that's what it's done for!) and internal resources / the ability to absorb freshly acquired resources.
President and CEO of F5
2 年Very insightful as always Geoff. I wonder if you would consider an additional 'type' of M&A. Companies with enough revenue to not be an incubation - but not quite critical mass/large scale revenue to land in the transformation zone - and whether you would take such asset through a 'transition' zone as an alternative.
From small experience sample, the deal never ends up like it was modeled. Particularly the every daunting Sword of Damocles, the financial analysis. It starts with the model, as a foundation, and quickly adapts to shifts in either the new eco system or the market. Leadership and the depth of the weave into the culture becomes so very important when the plan must deviate.
Telepathic timing - was in the process of reaching out to mentors for more detail on how they think about M&A! (Hoping this was serendipity and not next-level psychic retargeting ??.)