10 Tips for Making a Successful Acquisition

Mark Zuckerberg’s acquisition of Oculus only took three and a half days. Your acquisitions will likely not be as quick or as easy, but there are ways to cut out some of the red tape and ensure they will be just as fruitful as Facebook’s.

April 18 2014 by Lynn Russo Whylly


Last week, Mark Zuckerberg introduced himself to the CEO of Oculus, a virtual reality hardware firm. Three-and-a-half days later, after an intense closed-door meeting, Facebook acquired the technology start-up.

Your acquisitions will likely not be as quick or as easy, but there are ways to cut out some of the red tape and ensure they will be just as fruitful as Facebook’s.

Bain & Co. says that successful acquirers do four things right. They:

  1. Consider M&A an extension of their company’s growth strategy

  2. Develop a clear view on growth opportunities and M&A needs

  3. Plan for opportunity long before an opportunity arises

  4. Build M&A programs around frequent, continuous deal making

M&A expert David Braun points out that the biggest acquisition mistake a CEO can make is only going after companies that are available. Many leaders take a “reactive rather than a proactive approach,” resulting in finding only those opportunities that are exist instead of ones that fit your long-range goals, he posted in his blog.

According to McKinsey, an acquisition would be right for your company if you can achieve one of the following goals:

  • Improve the target company’s performance

  • Consolidate to remove excess industry capacity

  • Accelerate market access for the acquired company’s products

  • Get skills or technologies faster at a lower cost than they can be built

  • Pick winners early and help them develop their business

The Facebook-Oculus deal will achieve two goals: For Oculus, Facebook’s human capital and deep pockets will allow the start-up to expand and scale much faster than it could on its own. For Facebook, Oculus provides access to technical capabilities the social media firm didn’t previously have.

There are additional strategies, McKinsey says, that are harder and more difficult to implement, including consolidating highly fragmented markets where the existing competitors are too small to achieve scale. Also, price reduction or stabilization won’t happen unless a market consolidates down to three to four companies, and is not a good reason to acquire a company.

Sometimes, when two companies are brought together, the goal is to create an entirely new company, such as when Ciba-Geigy joined forces with Sandoz to become Novartis. This type of transformation is challenging and requires an extensive strategy to be executed well on both sides. In the case of Novartis, the new company has been a success, generating $1.4 billion in cost synergies, as well as opening up new global markets and R&D opportunities, according to McKinsey.

Ultimately, companies that are most successful at reaping the benefits of M&A are those that use it to their strategic advantage and build it into their long-range planning process.

Additional reading:

Bain & Co.
http://www.bain.com/consulting-services/mergers-and-acquisitions/acquisitions-strategy.aspx

[The] Top Mistake Leaders Make When Pursuing M&A
http://www.successfulacquisitions.net/top-mistake-leaders-make-when-pursuing-ma

The Five Types of Successful Acquisitions (McKinsey)
http://www.mckinsey.com/insights/corporate_finance/the_five_types_of_successful_acquisitions