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5 steps to a successful
business is a complex process. Even experienced entrepreneurs
often choose to use specialists as a guide for the different
steps and to avoid the main pitfalls of such an endeavour.
Many studies have shown that acquisitions by large
companies have a very high failure rate. KPMG examined 107
large mergers that took place between 1996 and 1998, and found
that after the fact, 30% of the mergers did not make any
difference and 53% of the companies actually lost value in the
Fortunately, the situation with small and
medium-sized enterprises (SMEs) is better. The Boston
Consulting Group estimates that 50% of the acquisitions by
companies with sales of up to $350 million were
successful. Since the transactions and structures in question
are not as complex, these companies can integrate more
However, the stakes are still very high:
smaller businesses cannot absorb losses as easily as larger
corporations, and failure of the acquisition may mean failure
of the SME. To avoid this situation, the 5 steps below should
be followed as rigorously as possible.
Develop an acquisition plan
a business must be part of an overall strategic plan. Before
initiating such an action, you must thoroughly analyze the
risks involved. You must answer these questions: is your best
option to acquire all at once the competencies or customers
you lack? is your company ready? can you improve your position
through internal development instead?
option should meet the following objectives:
increased or missing know-how;
presence in an export market;
your current situation or processes.
Your acquisition plan must define and
align major success factors. For instance, the merging of
business cultures and accounting/information systems are two
factors often neglected.
Often the choice of
acquisition is clear. However, an acquisition plan will enable
you to confirm or select businesses that are consistent with
your strategic orientation. If an interesting opportunity
arises, you will be ready to react quickly by accurately
evaluating its advantages, disadvantages, and chances for
2. Broaden the scope of due
When acquisition of a
company is the clear solution, the buyer normally agrees in
principle to proceed with the transaction, provided due
diligence shows that the reported facts are accurate. This
involves examining the financial statements, legal status,
inventories, etc., with in-house and outside experts in these
areas. The objective is to ensure that every element has been
The due diligence must not only confirm the
vendor's good faith but also the soundness of the business, in
terms of both its current situation and its development
potential. For instance, if the majority of sales are
generated by only a few customers, you should confirm that
they intend to continue to do business with the company.
Although difficult to do, your due diligence must also
take into account changes you intend to make to the company
after acquisition. These changes may be essential, but their
cost may substantially reduce the return on the capital
3. Make changes
Many mergers fail or partially
fail because the buyer is slow to make changes in the acquired
company. A prolonged transition is costly – not only because
of duplicated processes. It can also destroy the initiative of
the managers as they put off important decisions while waiting
for clear instructions. Thus, the acquired company can lose
significant value in a short time.
Before the deal is
signed, it is important to set up a strategic planning
committee responsible for orchestrating the merger. If
necessary, this committee can also form subcommittees
comprised of representatives from both companies. Their job
will be to integrate main operations as soon as possible once
the deal is signed:
Give human resources a central role
The presence of a human resources
representative on the central merger committee is essential.
In fact, many companies include an HR representative at the
due diligence stage if the deal seems certain. His or her job
is to measure employees' reaction to the sale of the company,
identify key people who should be kept on, and communicate
decisions that might affect employees.
merger process, communication with employees of both companies
is crucial. If you are considering layoffs, it is better to
let the people concerned know as soon as possible. This will
improve the morale of all employees; otherwise, they will feel
threatened for an extended period of time.
senior managers increases a merger's chance for success. Even
if they are the most likely to resist change, their presence
and experience will have a positive impact because they
Integrate the best of the two cultures
Instead of automatically applying your way of
doing things to the acquired company, it is suggested that you
combine the best methods of both companies for an overall
This is often a smart move in the
case of information systems. The differences between the
technologies are often too great to allow for successful
integration. The wisest decision is to adopt the best systems,
even if they are not yours.
In some situations the
benefits of changing your methods or making the acquired
company adopt yours are not sufficient to justify the
resulting disadvantages. This is often the case when you
acquire a company outside your initial market.
should not have any objection in principle to the new unit
keeping its own culture, at least in relation to procedures
that will not hamper your efficiency. Corporate culture
diversity is a reality that multinationals learned to deal
with a long time ago.
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