The more reasons you have to buy a company, the less you should want it. This may sound strange. After all, isn’t it best to be efficient and kill two (or more) birds with one stone? Since acquisitions are rather expensive, shouldn’t you get your money’s worth?
Endless Possibilities…Zero Results
It can be tempting to think this way, but experience shows that multiple reasons for an acquisition lead to multiple reasons for failure. In theory, meeting many needs through one acquisition sounds good, but in actuality you risk fulfilling none of them. With too many reasons for acquisition, your strategy becomes hazy, unfocused, and diluted. You move forward without a clear direction or purpose, which can lead to buying the wrong company, and to problems with integration.
Take the AOL-Time Warner merger as an example of an acquisition gone wrong. The executives praised the deal in a press release, saying, “No company will be able to better capitalize on convergence of entertainment, communications, and commerce. The possibilities are truly endless.” Unfortunately “endless possibilities” translated into a historic failure: the grand marriage collapsed.
By contrast, if you select just one reason for acquisition, you can grow your business with laser-like precision. The simplest, most straight-forward strategy is often the best in M&A.
If you’re still not convinced, consider this example. When hiring staff, companies generally find one person for each specific role on the team. Say your company needed a new director of finance, marketing vice president, and operations manager. Would you hire one person to do all three jobs? No – you would hire three separate people. With just one person, none of the jobs would get done.
Acquisitions work in very much the same way. Buy one company to fulfill one specific need. If you have three needs: new capabilities, new geographies, and new expertise, develop a strategy for acquiring a different company for each goal. Then, concentrate on just one for your first acquisition. After that, you can target your next strategic need.
By concentrating on one strategic need per acquisition, you can avoid making a very expensive mistake. Remain disciplined and focused to increase your chances of success: Have only one reason for acquisition.
Performing a successful acquisition requires excellent finance skills. Learn all you need to know with these AMA resources and seminars: