Corporate acquisitions

Moving a company into acquisition mode is easy. Making the right acquisitions at the right time is not.

Acquisitions work best when a company has three things: a useful product, good profit margins and real difficulty in presenting a solid image to the industry. A solid image means that most buyers believe the company will be around a long while and will be able to support the product it sells. After all, many broadcast products are expected to be in service for a decade or more. If a company is unable to convince the market of its survivability — especially when there are competing products from a well-known brand name — soliciting acquisition can be a good idea. If the buyer is well-established in the industry, the useful product becomes much more desirable with the buyer's branding label.

A similar scenario plays out quite well, generally, when just the product and its intellectual property are transferred to a bigger name. But this leads to a future where improvements are unlikely because the design talent remains outside the purchaser's control.

Clashing cultures

When are acquisitions not the right way to go? The biggest no-no is to form an organization by plucking various small companies out of the broadcast yellow pages and pitching them into a common pot. Several unfortunate consequences follow. The enthusiasm of the individual organizations' original employees suddenly wanes. They resent working for a bunch of “suits” who don't understand the industry fully, and they are often put in an administrative chain where everything goes across the desks of one of the first acquisitions. Also, arithmetic starts to break down. Although the gurus behind the whole operation can point to paper savings in combining operations and reducing overhead, the actual result is that two plus two no longer equals four.

When companies combine, they should never underestimate the effect different company cultures can have. A few years ago, the author watched a formal and by-the-book operation near Silicon Valley acquire a company in Dallas. In the Silicon Valley company, everyone on the customer side of the business wore a tie, and very specific control systems were in place to ensure that each product group was profitable in and of itself. Reports were formal, and routines were heavily scheduled and controlled. By contrast, the Dallas company was much more laid-back: no ties anywhere in sight, quite informal product meetings and report structuring, much more flexibility in goals, and the ability to change direction in a heartbeat if an opportunity presented itself.

It has been interesting to watch the two cultures vie for top place in Texas as a result of that acquisition. There were immediate victims (or, perhaps, escapees) who left the company straight away; they didn't want anything to do with the formality and the jerking of power westward. More left as they realized that the “marketing” titles they held were not real, and that all the power to make decisions and plan, launch and promote products had been stripped away. People generally don't like working with token authority. Today, the Dallas operation is a shell of its former self, with none of its original enthusiasm.

Why did the acquisition take place? For the same reasons that, unfortunately, influence many businesses: The the key man died, and the lack of a succession plan of any kind led to a completely rudderless ship.

The competition

The other absolute no-no in acquisitions is: Don't even think about taking over your competition. If it doesn't work out in the early stages of negotiation, you are often left with a pile of knowledge about the other company's operations that you can't legally use, but which you can't get out of your head either. If the acquisition does go through, you end up with a different set of problems. As far as your customers are concerned, you have taken a choice away from them. They regard your competition in the same way everyone regards discount airlines. You may not like the way they herd their customers like cattle at auction, but the fact that they are there makes the other guys more honest. Your customers may not consider the other company's products viable, but they feel the competition makes you keep your prices and features right. Often, too, when a choice is stripped from the market, someone else sees an opportunity to butt in. The author has seen a large customer of one product get so fed up with a lack of choice that it threw its own development into play so it didn't have to outsource at all.

Getting into acquisition mode is like getting into a sports car. It's pretty easy to slip into the seat but, as time goes on, it gets harder to get out. Don't listen to the salesman's patter, listen to your head.

Paul McGoldrick is an industry consultant based on the West Coast.

Send questions and comments