History has shown that purchasers often spend a disproportionate amount of time on financial analysis, related to that spent on the formulation of post-acquisition business strategy and its implementation. This may result in inadequate attention being paid to the merger of the two organizations, which can doom an acquisition to failure.
The ability to manage an acquisition following the consummation of a transaction is the ultimate test of the success or failure of the initial acquisition decision. While a purchaser’s perception of a target’s cash flow potential supports a range of value during the negotiation, the manner in which the two companies are integrated provides the foundation for the realization of the cash flow potential.
The ability to manage an acquisition after closing is the ultimate test of the success or failure of the acquisition
A number of studies over the years on public company deals have identified a trend that approximately 50% of acquirers express dissatisfaction with their acquisitions post-closing. In most cases, purchaser dissatisfaction can be grouped in two areas:
- inadequate operational due diligence prior to finalization of the transaction, and as a result, an inadequate knowledge base with respect to the business; and
- ineffective (or non-existent) planning for and/or the implementation of post-acquisition strategy to ensure an orderly transition.
In many cases, management is a key component of what the purchaser is ultimately buying. Attempting to preserve and strengthen management following an acquisition is an important factor in a transaction’s success. An assessment of the vendor’s management team and employee personnel is also an important element of the acquisition strategy.
A purchaser must attempt to answer the following questions in its post-acquisition plan:
- To what extent will integration take place? i.e. is this a standalone acquisition or will there be a total integration into the purchaser’s operations?
- Is sufficient management talent available? Both within the target and within the purchaser?
- What are the critical control points? i.e. items must be prioritized so that management has a reasonable chance of meeting the stated objectives of the acquisition.
- What is the action plan with respect to the above?