A founder CEO is faced with two options – either selling his company or buying
a complimentary company. The acquisition would fulfill his dream as CEO, but he
is concerned both about the synergy between the two entities and his ability to
manage the combined company. Should he sell, or buy the other company?
from the CEOs:
Given these concerns approach the
purchase opportunity skeptically. Be more prepared to say no than yes.
In evaluating his ability to run a
larger operation, the CEO should objectively assess his own abilities.
A good CEO is not a Superman. A good CEO
creates a viable business model and vision and hires a good team to bring that
model to reality.
Consider past accomplishments. In an
industry where nobody makes money the CEO has created a business model that is
sustainable, highly profitable, and technically superior. The only thing lacking
is size in terms of revenue.
The new opportunity – on the right terms
– can launch the company from dominance in a niche to dominance in a
significantly larger industry.
Assess the new opportunity both as a
technical and cultural match. If there is a good cultural match:
Fewer things must go right to add value.
The purchase provides a channel to a
The acquisition will rapidly speed company
The biggest concern will be the time to
manage both entities.
The most important factor will be the
chemistry between the two company teams. If the chemistry is good, the
combination offers reasonable assurance that the two teams will complement each
Look at the purchase as an opportunity to
build a win-win with enduring value.
In considering outside investors to
support the acquisition, be cautious about financial partners and the conditions
behind each financing option.
Situation: A company wants to create a liquidity event every 3-5 years. The objective is to increase shareholder value and also create opportunity for employees. How do you boost shareholder value and liquidity?
Advice from the CEOs:
What are the important considerations in evaluating different options?
Seek partners or investors with whom you have synergy and who will improve business prospects. There must be more than just their ability to provide cash.
What is the role of key management and employees post deal? For how long?
Are there timing aspects that help to maximize your own valuation? For example, if your business is cyclical, is there a time of the year when the financial picture is optimal?
As you evaluate alternative deals, evaluate the M&A fees around each option. Could these funds be used differently with greater impact on liquidity?
Technology spinoffs can increase liquidity while keeping the core company whole. Jack Stack describes this process in The Great Game of Business. This is also simpler and cleaner than many collaboration options.
Considering collaborating with or purchasing a complimentary company with an office in a desirable geography.
If an opportunity appears synergistic, dig to find the depth and value of the synergies.
Consider timing options. Are there prerequisites which will increase probability of success?
Roll-ups are doable but risky. It is hard to find examples that work. Challenges often come from of cultural issues and lack of compatibility.
Look at the experience of similar companies as benchmarks for what you might anticipate from various options.
Situation: A rapidly growing company is expanding both in its primary market and into new verticals. A number of companies are interested in strategic partnerships. How do you select the right partner in the right space?
At the end of the day it’s about a connection with the partner which extends across both organizations.
Look for cultural synergy with the other company. Do your and their managers and employees “click” or are they oil and water? This is a gut assessment.
Is the quality of people in both companies complimentary? Is there similar drive for quality and attention to detail?
Will technical integration be smooth? Are systems complimentary? At a minimum are there the right skills on both sides so that this won’t hinder the project.
Are sales and marketing approaches compatible? Will teams be able to work together? What about other departments?
You need to have strategic commitment across both organizations.
Partnerships don’t work if there is only alignment at the top. Executives can’t shove a new opportunity down the throats of those who report to them. There must be excitement about the opportunity across both sides of the partnership.
There must be complimentary competencies, capabilities and commitment.
Is there a clear understanding of the goals and objectives succeed?
Reward structures and incentives must be aligned down through the two parties. Conflicts will lead to struggles.
There must be a strategic alignment between the two organizations so that both see the partnership as complementing their broader strategic plans.
There must be a fundamental strategic win-win. The venture must be seen by each party as core to their business, plans and results. If this isn’t present, the collaboration can be drowned when a better opportunity that comes along.
Look for some gauge that the partnership is as important to the other party as it is to you. What other partners do they have? Is the size of the opportunity enough so that you are assured of their ongoing attention?