A
s market sentiment gradually recovers
acquisitions are appearing again on the
agenda: the recent sale of Streif Baulogistik
to Zeppelin Rental being a case in point. I have
had the opportunity to be involved in a number of
acquisitionsof businesses in thecourseofmycareer.
Some have worked brilliantly whilst others less so.
Herearesome reflectionsonhow toensureyoudon’t
wastemoney inanacquisition.
1 Acquire a companywhosemarket
position is based around an
individual leader
Often the most successful smaller businesses are
ones where a single owner-manager has been
instrumental in its growth and profitability, owning
the key relationships with customers, suppliers and
staff. This owner-manager will leave the business as
soon as any earn-out period is over and there is a
certain inevitability that staff and customers will
follow as soon as he sets up his next business in
competitionwith theone youbought.
2Acquire a business with a highly
concentrated customer base
Some businesses havemade themselves immensely
successful on the back of three or four customers.
There is always a likelihood, given an ownership
change, that the bonds of loyalty these customers
felt to the acquired business will weaken. The
change of ownership can make these customers
nervous and, even if there are no service issues,
theywill initiate a supplier reviewwhichwill lead to
partial or total loss of business.
3Acquire a business whose
culture is diametrically
opposed to yours
If you find that you have little common
ground with the acquired business
it will lead to an endless series of
misunderstandings, arguments and
deceptions. Needless to say, none of
thesearegoodand leads toawasteof
productive energy.
4 Treat the acquired
company like idiots
Employees of acquiring companies
can develop the view that their
company has been successful in concluding the
acquisition partly because they, personally, are
imbued with superior intelligence, wisdom, virility
and energy. They then behave towards their new
colleagueswith that attitudeof superiority.
The truth is that you acquire businesses because
they are good – often better than the acquirer on
many levels – and they need to be treated with
appropriate respect. Don’t do this and you will find
many key people leaving, while you are left with the
dummieswho think themselves superior.
5 Leave the business completely
untouched
This is the counterpoint of the previous risk. Some
business are acquired and then left untouched and
unintegrated by their new owners – through fear,
excessivedeferenceor just sheer lackof ideas.
The only point inmaking an acquisition is because
you think the business can achieve better outcomes
under your stewardship. By encouraging interaction
between old and new businesses you can be
surprised at the number of new opportunities that
are generated in both directions. Conversely, if you
do absolutely nothing with the business then why
would you think it is better under your ownership?
6Acquire a business requiring a
complete asset refresh
A common practice in the rental industry is for
businesses who are thinking of seeking a sale to
suspend or dramatically slow down their rate of
investment in new fleet. This can lead to a situation
where the acquiring company has to effectively
rebuild the asset base in a very short period
– effectively multiplying the price paid for the
business.
Conclusion
This list isn’t an exhaustive recipe for failure - for
example, ensuring that the price paid will support
aneconomic return is also important – but theseare
someof themost common, avoidableerrors.
More than in any other area of business, ego can
quickly grab a hold in an acquisition process and
rational judgment and common sense go out of the
window in the desperation to ‘do the deal’. Keeping
this little check list in front of you, and measuring
your acquisition targets up against it, might save
you awhole lot ofmoney.
IRN
KEVINAPPLETON is former CEOof LavendonGroupplc and former Divisional Chairman
of Travis Perkins plc. He is currentlyManagingDirector of Yusen LogisticsUK Ltd, non-
executiveChairmanof HorizonPlatforms Ltd , non-executivedirector at Ramirent Oyj
andnon-executivedirector of the Freight Transport Association. To comment on these
articles please email:
Sixstepsto
acquisition failure
KevinAppleton hasmade his
fair share of acquisitions
over the years. Here, he
offers his guide on common
pitfalls to avoid.
11
THEAPPLETONCOLUMN
IRNAPRIL-MAY 2014