M&A - Buy
Love Is Blind
Love Is Blind
If you’re like most transportation executives, you spend an inordinate amount of time wondering how to grow your business. Taking things to the next level is something leaders like to think about.
Organic growth is one tried and true strategy in our industry. But the sport of B2B sales has dramatically changed in the past decade. How much? Tune in to the Classic Sports Channel and compare the speed of any major sport played in the 1980s to the version of the game today. Yep. The sales game has changed that much!
Another way to grow is to crack open the wallet and buy growth. It’s no secret that the consolidation head winds are howling through the industry as many executives consider this option for the first time.
Buying growth isn’t as easy as you think. In fact, research shows that most acquisitions do not achieve their desired results. The complex process of buying a company can be fraught with risk. Once the minor mistakes start compounding, it can be impossible to recover.
If acquiring a company is in your growth plans, here are some tips to help you beat the odds and get the expected return on your investment.
Stay out of love
Getting infatuated with a company is one thing. You’d better be smitten with a business that you want to integrate into yours.
But falling “Stairway to Heaven” in love? That’s when the trouble starts .
You know you’re falling in love with a deal when you feel yourself spending time looking for reasons to make it work. The more time and money you invest, the harder it is to walk away, increasing the odds that you’ll make a bone-headed decision.
Don’t throw common sense out the window. You’ll end up writing a cheque you’d soon like to forget.
Every “sell” package includes an organizational chart that ranks key employees by their position and authority. What the sell package doesn’t include is the social chart that tells you who really runs the company. These social influencers are the day-to-day leaders who have earned their power through the respect and admiration of their peers. They’re also the ones who will be left standing once the dust settles and the business cards are put out to pasture.
Piecing together a company’s social chart and identifying the day-to-day power brokers is critical to any successful business integration.
Putting it together
Speaking of integration, poor integration is a primary reason that deals fail.
Melding the fourth-generation family run empire into your cappuccino drinking MBA set is by no means a slam dunk. Too often integration is an afterthought when your sole focus is getting the deal done.
Don’t underestimate the human capital, time, and coin it will take to meld two organizations together. It’s like trying to complete a giant jigsaw puzzle without the picture on the front of the box to guide you.
Paying for ‘maybe’
Any business you buy must be able to sustain its long-term value without realizing any of the expected synergies.
Sellers are quick to point out the wonderful things they will do to improve the bottom line once your deal is consummated. But that makes no sense. If oodles of cash can be saved by switching to a new supplier or reorganizing the sales department, why would anyone wait until the business is sold to pull those triggers?
Overpaying for “maybes” and underestimating the costs to achieve these synergies are rookie mistakes. Paying for expected synergies means you’re paying too much.
Buying a company is a great way to grow your business. Sure, there’s uncertainty involved, but not nearly as much as if you were never to try to grow your company at all. The status quo is a far riskier proposition.
About the Author
Mike McCarron, Mergers and Acquisitions for Wheels Group has over 30 years of experience in the transportation industry and is an elected board member of both the OTA and CTA.
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