Well-known British author and intellectual Aldous Huxley once made an observation that we at Avalon have to sometimes (gently) remind our clients of in some form, namely:
“Facts do not cease to exist because they are ignored.”
Although we’re pretty confident that Huxley did not make this observation while ruminating on a CEO’s track record with acquisitions, we know from our collective, deep experience in the acquisition domain that he could have easily done so. Acquiring a business can be a complex, messy endeavor that involves transfers of people, personalities, processes, technologies, customer relationships, know-how and more, and it rarely, if ever, goes exactly as expected. A strong story line on the surface (e.g., “immediately accretive,” “strong market fit” etc.) can mask underlying issues that may have been identified and addressed prior to the acquisition.
At Avalon we have found that an up-front, objective assessment of key performance and synergy (e.g., “softer”) characteristics across potential acquisition targets can make a critical difference in maximizing success (For a more complete process description, follow this link http://www.avalonassociates.com/our-approach/acquisitions/). One client of ours successfully employed this process to acquire a company that helped it meet its primary goal i.e., industry diversification to reduce the impact of cyclicality in its core industry. What defined this particular acquisition’s success, however, were the added capabilities that our client gained from the acquired company that enabled it to expand its core industry product lines and gain market share when the inevitable down-cycle came.
Our client’s success was driven by their objective assessment of the softer characteristics of its ideal acquisition targets, particularly engineering depth, product development capabilities, and management style. Specific, well-defined and measureable metrics were developed, rated and weighted for each of these characteristics along with the more traditional financial performance metrics. This fact-base proved invaluable in finding the right acquisition target and, just as importantly, eliminated some targets that our client thought were the best fit but fell short in important areas once all the facts were considered.