Acquisition Success is in the Planning

The oft-used rule of thumb is that 2/3rds of acquisitions fail to achieve their objectives. There is value in the old adage: Thinking through the downside probably changes the odds.
What if there were ways to improve success rates?
A review of 3 acquisitions by the same company, in the same time period, proves it can be done:
A |
B |
C |
|
Type |
Strategic |
Strategic |
Tuck-in |
CFA Involvement? |
Yes |
Yes |
No |
Prior EBIT |
3.0 |
1.5 |
2.0 |
Year 1 Plan EBIT |
3.0 |
6.7 |
2.0 |
Actual Year 1 EBIT (% of Plan) |
120% |
116% |
50% |
Several observations:
- Two of the deals were considered strategic. They were bolstering the company’s overall growth strategy, and acquiring new capabilities or significant new operations. The third acquisition (C) was a tuck-in deal, intended to build upon existing resources and locations.
- The company involved Cape Fear Advisors, LLC significantly in the two strategic deals. Internal resources marshaled the tuck-in deal through the process (though we did complete customer interviews on behalf of the company).
- In all cases, the company put together integration plans and an integration team to complete the outlined tasks.
- The two strategic deals overachieved plan in their first year. Deal B was a real stretch on paper, because it included a 4.5x anticipated improvement in EBIT. Results were more than 5x. Deal C, the more straightforward tuck-in transaction, limped through its first year, achieving 50% of its plan.
Keys to success are simple enough:
- Take the acquisition seriously. The more important the deal, and the greater the visibility, the better the results. If we look at Deal C objectively, it’s fair to say that the management team took some items for granted and relied a bit too much on the reputation of the seller and the company’s comfort in the transaction. A more disciplined, objective eye might have lowered expectations. Conversely, board discussions and reviews, and outside help, clearly enabled Deals A and B to be sharpened and to succeed.
- Use expert help to maintain objectivity and drive the process. The analysis speaks to the value of the upfront investment. Cape Fear Advisors, LLC’s involvement enabled our client to build a complete understanding of the opportunity, resulting in better negotiating favorable terms and communicating future plans, and playing a key role in the two successes. The investment of time and money upfront made the difference.
- Baseline, foundation plans are best for ensuring achievable goals and building a detailed execution plan. Both A and B included financial and executional plans that were built from the ground-up. We knew exactly what needed to be done, and took many of the necessary steps prior to the completion of the transaction. That investment made a difference.
In total, these transactions paid significant dividends to our client, and continue to outperform expectations. They are doing a great job managing the businesses.
And, we are confident our services made a real difference in the outcomes.
