Tips to Prevent Failed Acquisitions
It’s no secret that between 70% to 90% of deals fail to meet the parties’ expectations. However, what may not be as readily known is the underlying causes for this failed M&A activity. Here’s what you need to keep in mind in order to prevent failed acquisitions.
As you start to investigate an acquisition or a merger, you’ll read about a common cause for failure with the transaction is issues with integration. This topic covers a variety of points, but how can a purchaser really understand what this means in terms of this particular target company? Is there some type of due diligence to conduct that will reduce the chance of failure?
The results of a Deloitte study from 2014 found the most important component of a successful integration was customer retention and expansion. Likewise, that study also found this to be one of the most challenging aspects of integration to manage after the transaction closes.
With that in mind, here are some ideas that may help to improve customer retention and expansion to increase the chances of a successful purchase or acquisition thus helping prevent failed acquisitions.
Some entrepreneurs who purchase businesses are surprised to discover that the target company’s top customers may not be as loyal as they anticipated. They’re frequently surprised to find out that of a company’s top 25% of customers by revenue, most say that they’re only somewhat satisfied and not necessarily loyal or willing to refer the business to a friend or colleague.
Further, there are a few top revenue customers who are actually detractors. These customers have issues with the business and will note serious obstacles to satisfaction. These detractor customers are at risk of leaving for the competition. This is a serious concern for an acquirer, as these top revenue generators are at risk of either lower share of wallet (spending less of their budget on your goods and services) or taking their entire business elsewhere.
These two concerns have a material impact on Quality of Earnings estimates. That will make acquirers take a closer second look at the target company’s valuation. In addition, if the deal closes, the acquirer must immediately address the concerns raised by these two groups of top revenue customers during the diligence process in order to retain these vital customers after the close.
Company Performance vs. Key Competitors
When working with an experienced business advisor like Andrew Rogerson in Sacramento, you’ll get to measure the target company’s performance versus key competitors. Quantifying feedback and other metrics can be extremely worthwhile when examining customer perceptions toward a target company.
However, an acquirer must not lose perspective of this when interpreting this data and not compare it with the competition. A competitive context or perspective is quite helpful when developing a successful post-close customer expansion strategy.
Create a competitive advantage with macro and micro perspectives
Business acquirers need to understand any potential disruptions from a macro perspective. These are things like a change in the negotiations, new competitors, regulatory impact, and economic conditions. In the same light, the development of customer retention and expansion strategies for a specific company must also have a micro customer perspective. Experts say that the true value is realized when an acquirer can synthesize the macro and micro perspectives to pinpoint gaps that the target company can fill to create or improve competitive advantages.
Are you unsure how to tackle research on macro and micro perspectives to find and bolster your competitive advantages? Veteran business advisor Andrew Rogerson helps you prevent failed acquisitions.
Resources for you
If you are thinking of buying a business and would like more information here are some options available to you. This link will take you to our website where you can download and use immediately one of the books Andrew has authored for $17.95, Successfully Buy Your Business.
Work with an experienced business broker who can help you with all your acquisition issues. Andrew Rogerson is a business expert who has negotiated hundreds of mergers and sales in cities throughout the Sacramento Region. He’s helped numerous physicians sell in Elk Grove, Rocklin, Folsom, Davis, Citrus Heights, Rancho Cordova, Roseville, Cameron Park, and El Dorado Hills.