The biggest pitfall in an acquisition search? 'FOMO'!
An acquisition process often begins rationally. The strategy has been determined, the growth objectives are clear and the type of company that fits into the strategy is clearly defined. It all makes sense on paper. Until the first interesting candidates come along.
That is usually when the search slowly changes. Very subtly at first. A company that actually falls outside the criteria remains on the table for a while. A candidate who is too far removed from the growth strategy is given the benefit of the doubt. What if that is where the next growth acceleration is to be found? This fear of missing opportunities is something we see more often in acquisition processes.
Concessions to principles
Entrepreneurs are used to recognizing opportunities before others see them. That instinct has often contributed to their success. At the same time, therein also lies a risk. Especially in a market where good takeover candidates are scarce and speed seems to be increasingly important. Unnoticed, the central question then shifts from: does this company fit our strategy? to: can we make this company fit?
That difference seems small, but in practice you often see entrepreneurs making concessions on earlier assumptions. An integration risk is given less weight. A limited strategic match is compensated with growth potential. Or an investment that actually comes too soon feels attractive because the opportunity is now.
Choice stress
We recently coached an entrepreneur with strong growth ambitions. There were two candidates on the table. The first matched the existing strategy almost perfectly: a strong regional player with experienced employees, a stable customer base and direct added value for the desired expansion.
The second candidate was attractive in a different way. More innovative. Active in a market the entrepreneur had been curious about for some time. The business was close to an interesting breakthrough, but needed additional capital and guidance to really complete that development. Just that kind of story gets an entrepreneur excited. At the same time, the risk then often arises that the original strategy becomes less and less guiding in decision-making.
Back to basics
In this process, we therefore went back to basics. Where should the company be in a few years? Which step contributed directly to the growth objectives that had been set in advance? And just as important: which opportunities were better suited for a later phase of the company?
We also refocused on which criteria were decisive and on which points no further concessions should be made. This provided a basis for assessing the candidates in the same way as at the beginning of the process and brought peace to the decision-making process.
Indeed, businesses that "almost" fit often turn out to be the most complex acquisitions. They require additional explanations to financiers, cause internal discussions and put a lot of pressure on management and integration. Not because they are bad companies, but because strategy, timing and organization are not yet sufficiently aligned.
Once the entrepreneur had regained a clear understanding of the role that the acquisition should play within the growth strategy, the choice eventually became a lot easier.
Successful by missing opportunities
A successful acquisition begins with a clear growth strategy. The challenge then lies in maintaining that course when interesting opportunities present themselves. Because not every attractive acquisition candidate contributes to the growth objectives that have been set in advance. It is precisely the ability to continue to make that distinction that determines whether an acquisition ultimately mainly delivers growth or actually contributes to value growth.
