How To... Make a successful acquisition
- 20 February, 2008 22:00
Acquisition of another enterprise can put a company on the fast track to growth, but there are also traps for the unwary. Some firms find a buyout is the best way to grab bigger market share or make inroads into a strategic new business area. However, merging the cultures and personnel of organisations and making sure the deal is a long-term success is often a harder ask once the papers have been signed. Reseller News canvassed a range of companies that have acquired another enterprise, about the benefits and pitfalls of acquisitions.
Christchurch distributor Dove Electronics made its first acquisition late last year, after being in business for more than 20 years.
General manager Chris Rycroft says the buyout of IT Computer Products evolved from the firms’ two-way supplier/buyer relationship, while allowing Dove to regain strength in a particular product category.
It was therefore a strategic move rather than growing for the sake of making Dove a bigger business, he says.
“Normally we would grow organically as we have done for more than 20 years, but this became an opportunity. The relationship [with IT Computer Products] had a restricting element and it was going to be hard to grow organically in that product area with that supplier/customer relationship in place.”
A cultural fit between the companies should be the biggest consideration for channel members looking to acquire, Rycroft says.
“The danger is the numbers seem more important than the culture, but the culture is the more important part for the long-term success of it. You hear all sorts of stories about acquisitions, where the organisations together are worse than the individual companies were beforehand.”
He says the two firms didn’t have much trouble integrating cultures with Dove being much larger, although there was a lot of work creating new stock codes and with IT Computer Products staff learning Dove’s systems.
Wholly-owned Renaissance subsidiary Insite Technology bought fellow systems builder Ultra Computer’s brand and assets in mid-2006 and says resellers should consider acquisition more often.
“There’s some fantastic small businesses out there and they are facing a lot of challenges with things like compliance, training, managing and resources,” says Insite’s general manager Jan Paterson. “There’s some great entrepreneurial people, but in a business of less than five it can be very hard.
“[Acquisition] could add depth and presence and I think it’s a great opportunity, particularly within your own market segment or geographical region.”
Like Dove, Insite’s existing knowledge of Ultra and its work style made integrating the firms easier. She says Ultra was about a third of Insite’s size at the time of acquisition.
However, she stresses the integration process is still continuing, with the companies having focused on making as little change as possible to keep things running smoothly.
Paterson also emphasises that the acquired company has just as much to offer when two firms are brought together.
“We recognised very early on that there was as much that Ultra could bring to the business as we could bring to theirs. People should see it as an opportunity to learn from the other business.”
HP New Zealand has made a number of acquisitions in the past few years including Cap Gemini New Zealand (CGNZ), Compaq and Computer Sciences Corporation. HP managing director Keith Watson says these acquisitions have enabled the company to build both scale and capabilities of its services and software businesses.
“Through these new capabilities we are able to offer our customers a comprehensive set of solutions in conjunction with partners such as Microsoft, SAP, Oracle and Cisco, to meet the increasing customer demand for business technology solutions that align with business strategies and generate tangible productivity gains.”
Watson says the CGNZ acquisition was a local initiative driven by HP’s business plan and customer feedback, asking the company to provide incremental services to them.
“It was recognised to ensure a long-term successful integration that a phased or gradual transition to HP was required, with a one-year integration process taking place. Retrospectively you always wish that you could achieve these goals faster.”
A key ingredient of a successful integration is co-location and HP moved quickly to bring the two businesses under one roof, says Watson.
“Another important principle is to communicate. This involved a comprehensive communications plan including regular updates to staff supported by focus groups and our annual employee surveys, which provide feedback and identify areas requiring improvement or change.”
Watson’s advice for resellers looking to acquire another company is to plan carefully.
“Acquisitions should be based on either building scale to increase returns, or adding core capabilities to provide new growth opportunities in existing or leveragable segments. Acquisition should not dilute earnings and a lot of care needs to be taken with cultural fit, location and communication.”
Many multinationals have strong balance sheets that enable them to consider and fund acquisitions, says Watson.
“However, given international reporting and compliance issues, often items like due diligence have additional steps which take time.”
What is important to realise is that 90 percent of the acquisition effort should be focused on people, says Watson.
“Your people and those who belong to the company acquired, will drive the success of your acquisition. Neglecting the critical audience will slow progress and compromise your ability to realise your business objectives.”
And Watson does not rule out further acquisitions for HP.
“We continue to review organic versus inorganic growth plans and when opportunities present themselves we act if the economic, strategic and market factors align.”
Symantec Pacific vice-president Craig Scroggie says acquisitions last year, such as Altiris in April and Vontu in December, have brought early synergies in both product development and sales, which help to underpin new growth initiatives for the company.
“The Vontu acquisition furthered Symantec’s moves to bring data loss prevention technology into the midmarket. We chose to set up Altiris as a separate business unit. But despite its separate organisation, we’re working to rationalise overlapping products and integrate Altiris technology into other Symantec products to improve the level of automation they deliver.”
It is vital that the leaders of the acquired company are well-aligned with the intent and direction of the new organisation, says Scroggie.
“This demonstrates to all employees that the leadership is behind what the new company is trying to achieve and where possible that there is already a good cultural fit between the two companies.”
Scroggie agrees that communication is key.
“Whether it is to staff, customers or partners, you have to communicate not only what the changes are but the rationale behind the changes. You have to show them how the new organisation will benefit them.”
When considering an acquisition, a company needs to be very clear on the strategic goal it plans to achieve with the move, says Scroggie.
He warns there are many potential pitfalls, including acquiring a company that may be a poor strategic fit or there may be a cultural disconnect between both companies. “There may also be market and economy changes that affect the acquisition, while timing is critical to avoiding such pitfalls. However, a well thought out plan with proper execution can prevent some of the biggest pitfalls.”