Mergers & Acquisitions
What to do with the fresh capital received from the IPO? Accelerate growth through acquisitions of other companies! Great idea but be prepared. The seamless integration of an acquired company is a very challenging task.
At the time of the "New Market" hype in Germany it was typical for new public companies to utilize their IPO money to acquire companies for a faster growth. It fell into my remit looking after respective candidates and we did a few due diligences. Back then it was a completely crazy time as many companies played the game "eat or being eaten". It caused unrealistic valuations and expectations and finally we decided to concentrate on our organic growth with new and better products.
Managing growth by acquisition is a valid strategy, if the time is right. It means, when your company is mature enough and the candidate appropriate. "Mature", because it needs a lot of top management attention to execute such a transaction and your daily business must not be damaged. "Appropriate", because the candidate should be healthy and not in too big troubles. Asset strippers may think different, but this was never my piece of business.
A couple of years later we sold a major part of our company and I was back in the M&A business. This time at the selling party putting us to the market. And yet another few years later the new company acquired another one and I was back on the buying side.
I do not want to elaborate on the importance of an external M&A advisor and all the technical due-diligence things. That's fine and you need all of it and much more tax and legal stuff. However, after the acquisition the real work of M&A begins and all your external advisers are back home already.
Now it's time to make the merger a success so that all the invested money pays off. And exactly here, most of the mergers fail! They fail, because the predicted revenue and cost synergies turned out to be wrong. They might have been honest pre-deal, as everyone was optimistic and supportive. Post-deal, you are facing a different picture: Synergies means cuts or at least changes in organization, development, products, staff and customer communication. Not surprisingly this causes fears, rumors and frictions if not managed open and honestly.
Its a challenge for the top management to implement a corporate culture in which it does not count whether a person or an area of responsibility or a product originally belongs to the team which bought the other one or if it is part of the team which has been taken over. Today in a globalized world, this kind of troubles are even more complicated when different cultures and languages must be taken into account. But this is another story.