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Abbott, Keeven & Fisher PartnersPartners In Hyper Growth

Successful Acquisitions

How do you successfully integrate an acquisition? Most academic research on this subject seems to suggest a rational choice perspective which focuses on either strategic fit or organizational fit.

The strategic fit camp emphasizes strategic analysis and negotiation prior to the acquisition whereas the organizational fit research emphasizes the integration of day-to-day operations post acquisition. There has even been recent research on the impact of the acquisition process itself, which makes sense given that first impressions are established during this phase. I’ve had the good fortune of seeing acquisitions from all different perspectives, as the acquired, as the acquiree, as a consultant of the acquiree, etc. I think there are two models that result in successful acquisitions.

First off defining a successful acquisition is tough. Whether or not the acquiring company writes off the purchase cost in a few years might be one way but these write offs can include goodwill which is the amount of the purchase price paid above the value of the target’s identifiable net assets. There are of course accounting rules for testing impairment of goodwill that may require it to be written off. Another way of testing this might be by calculating Return On Investment (ROI) for the cost of the acquisition. A third way of determining success would be whether the acquired company’s product offerings continue 3 or 5 years later. If the acquiring company has discontinued the acquisitions products the purchase might be considered a failure. Lastly, I tend to think of a successful acquisition like Justice Potter Stewart tried to explain what is obscene by saying “I shall not today attempt further to define the kinds of material I understand to be embraced … but I know it when I see it.”

Whether there is a clear definition or I know it when I see it, there appear to be two paths to get there. The first is what I term the GE-approach because of all the acquisitions I saw while at General Electric during the 90’s, this appeared to be the dominant strategy, although I’m sure many other companies have similar methods. It’s simply an approach of overwhelming the acquisition’s culture and turning it into a GE culture as fast as possible. They did this by sending current GE employees into key positions at the acquisition and sending the acquisitions employees to lots of GE training. Within the first year the acquisition was on the GE strategic planning calendar, using GE financial systems, and following GE’s HR guidelines…they were a GE company by that point.

The second approach is to leave the acquisition completely alone and let it run autonomously. The only tie to the acquiring company is through financials. The parent company acts like a board of directors, approving annual budgets and determining the reinvestment ratio. The acquiree is left to their own to manage the day-to-day operations, processes, etc.

If you’ve seen other successful acquisitions handled differently let us know your thoughts.