Start small to get big

Paul Winter, past president of the Management Consultancies Association, and now an MCA board member and partner at Concerto Partners, offers advice on how to deal with mergers and acquisitions


While mergers and acquisitions (M&A) in the UK have yet to reflect economic recovery and growing business confidence, hostile takeovers are at a 14-year high. With global M&A activity rising, these trends suggest better value is available overseas and big global companies are in a buy rather than build phase.

This may support the “company maturity gap” idea which seeks to explain why bigger companies with better resources and access to finance have grown much faster than the rest of the pack coming out of recession. Previously attractive small acquisition targets are now too small to buy for the cash-rich Fortune or FTSE 500. This leaves companies with a major challenge in maintaining strong growth – they need to buy or merge rather than rely on organic growth.

M&A comes with many complex risks and can be very distracting to “business as usual”, with many pitfalls.

The first pitfall is the lack of a clear organisational purpose, a simple “why are we doing this?” It may be about numbers to you, but it’s about opportunity for your talent pool, your most important asset. Make sure you work closely with them as they will keep the business running and help you build a business case that they will back and execute later. You then have a team onside to implement the synergies and support your original promise to shareholders.

Almost all economists agree that it is natural to merge and acquire

Almost all economists agree that it is natural to merge and acquire. It speeds up the growth process and keeps you on your toes. You have to be in good shape to do a successful merger. Doing a small acquisition will give you a good feel for the sort of issues you will face and the pointless value destruction of constantly letting them know you are the conqueror. You are doing a good thing by leveraging growth.

PHYSICAL AND HUMAN ASSETS

Of course, the numbers are important, but just as important are the physical and human assets, the customers and the stakeholders, not forgetting the expensive report you have commissioned on markets and competition. You must invest well in all of these areas.

If it’s a merger, don’t forget that, even with the very best of relationships at the top, high-level stakeholders on both sides still need detailed attention. They have reputations to manage as well, which to them could be as big as your business.

Finally, so many mergers fail because of a lack of resilience in the leadership teams on both sides. If it’s a merger or a takeover, treat it like a reverse takeover to keep your ego out of the way and make absolutely sure your team is on very top form. Then invest in making sure the partner team is in best shape too. It will expose them and you will learn a lot.

In the last 20 years I have worked on transformations, hostile and “friendly” acquisitions, mergers, reverse takeovers and joint ventures.  My recommendation is start with a small acquisition, or preferably a joint venture, and lots of them. They are cheaper and good experience for the leadership team. But you need to “cut your teeth” now as they take longer – and that game-changing M&A could be just around the corner.