S Digest What You Eat! (Practical Suggestions For Successful M&A)

Hugh Latif is a highly respected and well known Management Consultant. He is the author of “Maverick Leadership." Latif believes that as we enter the new year, we can expect to read the usual list of the major acquisitions.

Many of you are familiar with the standard benefits offered by mergers and acquisitions: 

1. Acquiring market share

2. Diversification of product and service offerings

3. Increasing plant capacity or distribution channels

4. Acquiring specific strategic expertise, R&D and/or assets

5. Reduction of financial risk

In addition, acquisitions are attractive because of the “speed of growth effect” that comes from owning new assets and resources almost overnight. Instead of waiting to achieve results through regular organic growth, the acquisition route to results is so much quicker. You make a one-time investment, which hits your balance sheet just once. 

Entering into an acquisition, the major consulting and accounting firms stand ready to help. This includes helping you identify targeted companies, put together a plan of attack, evaluate, negotiate and finance the deal, do the legal paperwork, address fiscal strategy, and obtain government approval (often for larger acquisitions). 

These firms provide all the help you need during the making of the deal. But once the acquisition is consumed and advisors collect their fees, the army of accountants, lawyers, experts and advisors leave. They wish you much success for "many happy years", but now it is just you left alone to sort out the new customers acquired, the new employees that are now member of your family, the new assets that were purchased, and most importantly the new culture you’ve just inherited.

Latif believes that when you need help the most, nobody is around to put together these two organisations, or in other words, help you digest what you just ate! 

This is the main reason why acquisitions fail. Eating (the actual acquisition) is not the problem; it is the digestion that leads to either success of failure! I recently had the opportunity to discuss this with Hugh who had the following to share:

Post acquisition planning and execution is the main reason why acquisitions fail. For an acquisition to succeed, there must be a comprehensive plan in place, ideally one that has been researched well and put together by the new team, not consultants and advisors.  Many acquisitions have earn-out clauses, meaning that a portion of the agreed upon price of the deal is paid up front, and a second part is earned and paid as the benefits of the M&A are realised. Why not have advisors and consultants paid in the same manner! This would solve 80 percent of the problems. 

The second big reason why M&A fail has to do with the acquisition price. In the interest of consuming the deal, the acquiring company often ends up paying too much simply because the valuation was made by non-independent interested party (ies). Remember that the value of advice is in direct relationship to the expertise of the giver, and in indirect relationship to the degree of their involvement or. True advice must come from an expert who is independent. Valuations should be made by an independent party! I suggest separating the brokering from the advice! If your expert advisor fees are directly tied to the value of the deal, then they benefit from a higher price and not a lower one. 

In my new book, Maverick Leadership, I dedicated a chapter to "sustaining your business performance." The chapter  explains, among other things, the six key ways for building moats around your business. I also gave examples of failed and successful acquisitions—it makes for some interesting reading, if I must say so myself! 

Hugh Latif, of Hugh Latif & Associates in Vaughan, Ontario is a management consultant  who helps mid-size, private companies with strategy, succession planning and HR. He is author of a new book, Maverick Leadership.

Mark Borkowski is president of Mercantile Mergers & Acquisitions Corporation. Mercantile is a mid market mergers & acquisitions brokerage firm in Toronto.  more

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