That strange good feeling of falling in love…
Who doesn’t know it? That strange good feeling that the English metaphor “butterflies in the stomach“ (in German “Schmetterlinge im Bauch”) describes so well! That feeling adds spice and joy to our lives. Does this feeling exist in business life? Yes it does and I have observed it many times, especially in the M&A environment, typically on the buy side. Many business people just fall in love with a target company they would dearly like to acquire. The factors triggering this compulsive desire to acquire are multiple. In my view they can be defined in 3 major categories:
1) Shortcut on the job that the acquiring company still has to complete (on the development, market or customer side)
2) Strong belief that the target company’s management isn’t capable or willing to seize market opportunities
3) Bigger is better
Many times I have heard statements like “Their brand new technology would be a perfect complement to ours” or “We can win that important customer of theirs, whom we have tried to win over for years”. And I have seen many companies, small business and large-listed corporation, going for size.
The motivations above can drive you to either good or very bad acquisition. Some bad acquisitions as well as delayed divestments can mean trouble and in certain cases even the end of your business. If you happen to be a CEO or any other decision-taker in a company, no matter how large or small, my advice to you would be the following:
a. Before thinking of acquiring a company make sure you have a strategy[1] . A company acquisition cannot be your strategy but can be one of at least three means to implement your strategy. I am always stunned by the number of companies that believe they have a strategy when they don’t. Or even worse, that develop an acquisition strategy before having a strategy at all. An acquisition is a tool, never a goal[2].
b. If you ever think of acquiring a company to shortcut on your homework (strategy, sales or development), the first question you should consider is why you are trying to shortcut and if your management is really up to the challenge[3].
c. When you choose who should support you in the acquisition process, think about their motivations. If someone is paid a certain amount of money to support you and some more once the transaction is done, this person will do anything to encourage you into a transaction, overtly or covertly. For someone out there in the market, the long term destiny of your company is not as important as the closing fee earned short term. Your advisor (whom I recommend be chosen outside of your network and with concrete line experience) must be firm enough in his views to recommend a withdrawal from the transaction should this be in the interest of your company. I remember a very long transaction, supported by top management consultants and auditors, for which I had to fight up to the Board of one of the largest corporations. I got the approval and the cash for the acquisition but my competence and gut feeling told me to look into the potential acquisition again. Guess what? The target’s management had planned a “walk out” soon after the completion and had started to build a clone elsewhere. It was hard for me to stop everything and to explain to the board, that no, after this entire persuasion job we needed to forget everything. It was very hard for me, but it was good for the company.
d. Value and price. It is astonishing how often we forget about the fundamental difference between value and price when we fall in love. If as a CEO you are willing to pay a price which goes beyond the value (and I have seen plenty of managers creatively inflating the value to reach the price), this is a CLEARCUTCASE©: you have fallen in love.
Falling in love in business or in life has its consequences. In non-business life love can make you blind. Even if you recognise defects and vices in your partner you run the concrete risk of overlooking them. I recall due diligences report “loosing” some bruising risk-warning chapters, business plans “twisted” to account for fantasy revenues or 4th dimension synergies.
In a nutshell: falling in love can give you that strange good feeling everybody likes. However too much love for a target company can make you blind: do not allow it to make you stupid too. Before proposing to your next business partner it is always wise to talk to someone who is not as involved or interested as you are and whom you think is strong enough to give you also the advice you do not want to hear.
I am at your disposal:www.francescodibari.eufrancescodibari.blogspot.de
[1] “Having or not having a strategy“. This topic deserves a special dedicated post[2] There you go, another topic: Strategy. A great step for you to make is to ask what is your company strategy. I bet in most cases you will hear something like achieve xx million revenue (!). A certain revenue figure or profitability can only be the consequence of your strategy, not the strategy. If that’s what you hear and you are an employee of that company, start updating your cv before it is too late.[3] Markets do not crash companies, management do. Another topic for this blog
Who doesn’t know it? That strange good feeling that the English metaphor “butterflies in the stomach“ (in German “Schmetterlinge im Bauch”) describes so well! That feeling adds spice and joy to our lives. Does this feeling exist in business life? Yes it does and I have observed it many times, especially in the M&A environment, typically on the buy side. Many business people just fall in love with a target company they would dearly like to acquire. The factors triggering this compulsive desire to acquire are multiple. In my view they can be defined in 3 major categories:
1) Shortcut on the job that the acquiring company still has to complete (on the development, market or customer side)
2) Strong belief that the target company’s management isn’t capable or willing to seize market opportunities
3) Bigger is better
Many times I have heard statements like “Their brand new technology would be a perfect complement to ours” or “We can win that important customer of theirs, whom we have tried to win over for years”. And I have seen many companies, small business and large-listed corporation, going for size.
The motivations above can drive you to either good or very bad acquisition. Some bad acquisitions as well as delayed divestments can mean trouble and in certain cases even the end of your business. If you happen to be a CEO or any other decision-taker in a company, no matter how large or small, my advice to you would be the following:
a. Before thinking of acquiring a company make sure you have a strategy[1] . A company acquisition cannot be your strategy but can be one of at least three means to implement your strategy. I am always stunned by the number of companies that believe they have a strategy when they don’t. Or even worse, that develop an acquisition strategy before having a strategy at all. An acquisition is a tool, never a goal[2].
b. If you ever think of acquiring a company to shortcut on your homework (strategy, sales or development), the first question you should consider is why you are trying to shortcut and if your management is really up to the challenge[3].
c. When you choose who should support you in the acquisition process, think about their motivations. If someone is paid a certain amount of money to support you and some more once the transaction is done, this person will do anything to encourage you into a transaction, overtly or covertly. For someone out there in the market, the long term destiny of your company is not as important as the closing fee earned short term. Your advisor (whom I recommend be chosen outside of your network and with concrete line experience) must be firm enough in his views to recommend a withdrawal from the transaction should this be in the interest of your company. I remember a very long transaction, supported by top management consultants and auditors, for which I had to fight up to the Board of one of the largest corporations. I got the approval and the cash for the acquisition but my competence and gut feeling told me to look into the potential acquisition again. Guess what? The target’s management had planned a “walk out” soon after the completion and had started to build a clone elsewhere. It was hard for me to stop everything and to explain to the board, that no, after this entire persuasion job we needed to forget everything. It was very hard for me, but it was good for the company.
d. Value and price. It is astonishing how often we forget about the fundamental difference between value and price when we fall in love. If as a CEO you are willing to pay a price which goes beyond the value (and I have seen plenty of managers creatively inflating the value to reach the price), this is a CLEARCUTCASE©: you have fallen in love.
Falling in love in business or in life has its consequences. In non-business life love can make you blind. Even if you recognise defects and vices in your partner you run the concrete risk of overlooking them. I recall due diligences report “loosing” some bruising risk-warning chapters, business plans “twisted” to account for fantasy revenues or 4th dimension synergies.
In a nutshell: falling in love can give you that strange good feeling everybody likes. However too much love for a target company can make you blind: do not allow it to make you stupid too. Before proposing to your next business partner it is always wise to talk to someone who is not as involved or interested as you are and whom you think is strong enough to give you also the advice you do not want to hear.
I am at your disposal:www.francescodibari.eufrancescodibari.blogspot.de
[1] “Having or not having a strategy“. This topic deserves a special dedicated post[2] There you go, another topic: Strategy. A great step for you to make is to ask what is your company strategy. I bet in most cases you will hear something like achieve xx million revenue (!). A certain revenue figure or profitability can only be the consequence of your strategy, not the strategy. If that’s what you hear and you are an employee of that company, start updating your cv before it is too late.[3] Markets do not crash companies, management do. Another topic for this blog
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