A recent article in the Harvard Business Review made a perhaps surprising conjecture: that as far as mergers and acquisitions are concerned, those companies that focus on what they’re going to get from an acquisition are less likely to succeed, in terms of the deal outcomes, than those companies that focus on what they can give to the process.
Acquiring companies being in ‘take’ mode was a dangerous place to be, it claimed. Indeed, corporate giants are not immune from this conundrum either, if we think about, for example, Microsoft and Google wanting to get into smartphone hardware in ‘taking’ from Nokia and Motorola respectively.
A buyer in ‘take’ mode means that the fortunate seller can increase price, especially if there is more than one potential buyer in the picture, and effectively remove the future value of the transaction. Buyers on the take, really knowing what they want, are also more prepared to pay top dollar – which, in and of itself, poses a problem in eventually getting a good return. But companies with a ‘getting’ focus also tend to lack adequate understanding of their new markets, making failure even more likely.
Having something to give to the deal, however, really benefits outcomes. This could mean anything that makes the acquired company more competitive in its market, and especially if the buyer is the only partner who can offer this new competitive edge.
The much-talked-about Harvard Business Review article listed four main ways that the ‘giving mode’ buyer can increase the competitiveness of the bought company and ultimately secure better outcomes on the deal:
PROVIDING GROWTH CAPITAL
This works particularly well if you’re investing in countries with less developed capital markets, such as India. But the model also works well if the investor is providing growth capital in newly-emerging or fast-growing sectors where there’s a lot of competitive uncertainty, for example in the burgeoning virtual reality market a few years ago.
PROVIDING BETTER MANAGEMENT
‘Better management’ here can in fact mean strategic direction, discipline or organisation – or, even better, a combination of all of those. Private equity buy-outs are really the wellspring of this model, although it can work in any form.
TRANSFERRING VALUABLE SKILLS
These can be transferred directly or through re-deploying specific personnel, but the skills have to be critical to giving a competitive advantage, and the buyer has to possess them much more than the seller does in order to make this model work. Also, the seller needs to know the new business quite intimately to be able to really discern which skills hit the mark here.
SHARING VALUABLE CAPABILITIES
Here, the acquiring company simply makes skills or assets available to the bought company, rather than transferring them over. This model requires a good understanding of strategic dynamics.
To summarise, what the buyer puts into the deal determines the outcome of the deal. It’s a strangely ‘warm’ sentiment to find in a serious journal discussing the M&A sector, but in essence we’re really only talking about different approaches to the deals in question.
In thinking about your current plans, are you an acquirer in ‘getting’ or ‘giving’ mode, or a seller who stands to benefit from dealings with a giving buyer?
WE ARE READY WHEN YOU ARE.
Call Benchmark International today if you are interested in an exit or growth strategy or if you are interested in acquiring.
Americas: Sam Smoot at +1 (813) 898 2350 / Smoot@BenchmarkCorporate.com
Europe: Carl Settle at +44 (0)161 359 4400 / Settle@BenchmarkCorporate.com
Africa: Anthony McCardle at +2721 300 2055 / McCardle@BenchmarkCorporate.com
ABOUT BENCHMARK INTERNATIONAL
Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximizing solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $5B across 30 industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from 13 offices across the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.