Acquisitions - Avoiding the failures (1)

by Perry Lewis, Director

It is widely quoted that the majority of acquisitions fail to meet their original objectives.  Often these are attributed to over-optimistic market perceptions, or the need to talk up the acquirer’s share price in a competitive bid, or on some failure in the due diligence process.  But in my experience the single most common reason is the failure to adequately plan and execute post-acquisition integration.

Think about it.  We go to great lengths to recruit a senior manager, preparing job and person specifications, conducting exhaustive interviews and tests.   We then take them on a trial basis, put them through induction programmes and take extensive steps to acclimatise them so that they can become an effective member of the new team.  But how many acquirers go to the same lengths when taking on a business with 500 staff at once, where if it doesn’t work out, a quick exit is not so simple?

In the early nineties I acted for the Management Team and founders of a public relations consultancy that had three years earlier been acquired by a major international advertising group for some £10 million.  However, from the outset the acquirer had failed to integrate the target’s activities into their own and discovered that when the service contracts and restrictive covenants of the key directors (the management team/founders) were about to expire, there was no management succession.  My clients were able to re-acquire the business for £1.5 million, a fraction of the original cost.

In the 80s and 90s a number of the major UK retailers and banks burnt their fingers through not anticipating the cultural differences when acquiring US businesses.  And only recently Emap sold its US magazine business for £366 million having paid £950 million for it just two years earlier.