WHY DO ACQUISITIONS FAIL AND HOW DO YOU AVOID A BAD OUTCOME?
It is an unfortunate fact that Acquisitions have a very high failure rate. This may seem a powerful statement but it is borne out by the statistics.
- “If one were to define ‘failure’ as failure to increase shareholder value then statistics show these to be at the higher end of the scale at 83% (Cnnfn.com 1999).”
- “In 2004, McKinsey calculated that only 23% of acquisitions have a positive return on investment.(http://jurisonline.in/2008/11/failure-mergers/)”
- The generally accepted view is that over 50% of all acquisitions fail to achieve an increase in shareholder value.
I believe that this applies mainly to very large acquisitions and they are the ones that hit the headlines. In my experience, most acquisitions, undertaken with careful planning and due diligence do provide significant value.The main areas to consider are:
- proper strategic thinking for an acquisition
- sufficient and well thought-through preparation by the management team making the acquisition
- acquirer must be properly prepared financially
- never pay too much
- use experienced and practical professional advisors
- ensure that you have adequate resources allied to the acquisition process
Acquiring a business is firstly strategic, followed in short order by “people”, after which it is both a financial and a legal matter. Successful acquisitions always have all four of these pillars soundly in place.
While Sellers invariably prefer multiple suitors in order to conduct a covert auction, Acquirers prefer to be a single bidder thus ensuring they have time to really understand what they are acquiring and how to integrate it.
What UK Business Advisors Acquisition Planning advisors can do to assist your business. Real life experience, strategic advice and tactical support.
- Develop the value enhancing strategy
- Action-focused Business Planning
- Assistance with what follows next – a Business Support Programme to help you implement and deliver the plans
- Fund raising and acquisitions assistance
More to follow next time. lease feel free to get in touch with Peter Kroeger for more information.