The right way: Acquire companies that create synergies, and structure the acquisition to protect and assure the human and technology assets you pay for. The wrong way: Slam the acquired company into the acquiring company to create one contiguous unit with identical polices and consistent management spans of control.
The right way preserves value. The wrong way makes it easier for middle and executive management — but it almost always destroys the value of the asset, since whatever made the acquired company uniquely valuable is generally destroyed (unless the firm simply bought technology).
With an acquisition, look closely at three things:
- What's the acquiring company's process for and history of acquisitions?
- How much money will key people in the acquired company get?
- Do you agree with the acquiring company's strategy, and does the acquired company fit well within it?
If the company regularly destroys the assets it acquires — and this is very common — it will probably destroy the newly acquired firm, either initially or over time. If key people in the firm will get more money than they could ever imagine out of the acquisition, chances are they'll leave mentally and then physically, which will kill the company over time. If the firm's strategy doesn't make sense, and/or if the acquired company doesn't seem to fit, then the firm will be starved for funding. In all cases, a long-term bet on the company is a bad bet.
Assume the Worst, and Be Ready to Run
Given how often divestitures and acquisitions get screwed up, it's best to start with the premise that things will go badly and then look for evidence that you're wrong, rather than the other way around. Don't assume that any acquisition or divestiture will be painless, or that any company can reasonably say how things will end before they even start.
Look at a firm's skills, its success/failure rate and its long-term strategy. From there, you can decide if you want to ride out the acquisition/divestiture or run for the hills. Keeping your running shoes handy remains a best practice.
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