What acquiring companies need to know for a successful acquisition
SF&P Advisors has handled over $1.35 billion in acquisition transactions, and this number is growing every day. Since 2016 alone, SF&P has closed over $900 million in deals. Many of the acquisitions have involved large companies acquiring smaller companies, while many others have involved smaller companies or private local transactions.
Regardless of the size of the transaction, all of these acquisitions have something in common: They were successfully handled with our four-step acquisition process. What makes a successful acquisition? Ultimately, each transaction is unique, but successful acquisitions tend to have the same key features.
This guide breaks down some of the most essential elements of a successful business acquisition. It explains exactly what the acquiring company needs to keep in mind if it wants the transaction to be successful. Companies hoping to be acquired, in contrast, should look at these tips for preparing to be acquired.
Here are five elements of a successful acquisition.
1. Specific value creation opportunities
Successful acquirers have very specific ideas about why they want to acquire the target company. They precisely understand the value the target brings to their business, and they have clearly articulated objectives.
With less successful acquisitions, the buyers often have vague rationales. They pay lip service to the ideas of increasing scale or diversifying their portfolios, but they don’t have a clear strategy for creating value.
The way an acquisition creates value typically falls into one of these 6 categories:
- Improving the target company’s performance by reducing costs to boost profit margins and cash flows.
- Consolidating to remove excess production capacity from the market by taking actions such as shutting plants across the combined entity or reducing the capacity of the sales team.
- Accelerating market access for the target company’s products or services, which typically happens when the acquirer has the processes or sales force to bring the target company’s offerings to a larger audience.
- Obtaining skills and technology at a lower cost than they can be developed by the buyer.
- Increasing scalability by adding capacity, staff, and a new customer base.
- Identifying companies on the rise and acquiring them to help them increase their development.
Successful acquisitions typically start with the acquiring company identifying how the target company brings value to their company in one of those ways. If the acquirer is not clear about the target company’s specific value prop to their organization, the deal is less likely to be successful.
2. Vision acceleration
Having clear objectives in relation to the acquisition is critical for success, but the success of an acquisition is also affected by what happens after the companies combine operations. To be successful, the acquirer and the target cannot just integrate. Instead, they need to accelerate the original vision for the transaction.
In particular, the integration should be handled in a way that specifically incorporates the reason the acquirer wanted the target company in the first place. Acquirers need to stay focused on why they made the decision to acquire the target, and they should avoid the risk of embracing generic best practices instead of focusing on the unique aspects of the transaction.
3. Customer-focused goals
Customers tend to be skeptical about acquisitions — this is particularly true when a big company acquires a small one. Customers want to ensure that they get the same level of service, and the company continues to be sensitive to their needs. During the transition period, they may be hypersensitive and demand even better customer service than usual.
HVAC and plumbing companies, like any other business, cannot survive without their customers. Acquiring companies need to keep this critical fact in mind, and they need to focus on customer service. If customers feel like the acquisition benefited them, they are more likely to stay loyal and help evangelize the business to their contacts. On the other hand, if customers don’t feel heard or feel like the change has diminished the quality of the HVAC or plumbing services they get, they will take their business elsewhere. Loss of customers will diminish the success of the acquisition.
4. Measurable goals
Identifying the specific reason for the acquisition is critical, but ideally, acquiring companies should also quantify how they are going to measure the value they’re trying to create with this transaction. If, for example, they are acquiring the target company to improve its performance, they should set specific goals about how much they want to decrease costs or increase profit margins.
Similarly, the acquirer should use metrics to assess the success of the acquisition after the companies have merged. They may want to measure increases in marketing awareness, sales goals, or customer satisfaction rates. The most effective goals during the post-acquisition phase are specific, measurable, achievable, relevant, and time-bound.
Setting and meeting goals also makes it easier to explain progress to key stakeholders. Without accurate data, frustration can quickly turn to accusations and disappointment.
5. Cultural fit
If the acquiring company and the target company don’t have a cultural fit, there is likely to be a loss in talent. Key people may leave the company when their contracts expire because they are no longer comfortable working there. Successful acquisitions typically involve companies that match well from a strategic standpoint as well as from a cultural standpoint.
Both companies should have similar core values, and ideally, the acquirer should ensure that there is a cultural fit early in the acquisition process.
Keeping these essential elements in mind will help make your acquisition more successful. Without these elements, acquisitions often look great on paper but end up floundering in reality. If you want to be successful, you also need to ensure that you work with a specialist that can help guide you through the acquisition.
Contact us at SF&P Advisors
At SF&P Advisors, we guide our clients through mergers and acquisitions in the HVAC and plumbing industries, and we work hard to ensure every deal is as successful as possible. If you are thinking of acquiring a company or interested in having your business acquired, we can help you. To learn more, contact us at SF&P Advisors.