As you contemplate additional revenue growth through acquisitions, consider these key questions each time you evaluate an acquisition target.
• Why are we buying this company?
• What is the value of this company to our enterprise?
• What is the correct structure for this transaction?
• How will this acquisition be funded?
• How will this acquisition be managed once acquired?
It’s all over but the shouting. You’re about to take the reins of your acquired company. Only one question remains: how will you manage the acquisition?
Transition versus Operation
We need to distinguish transitional management issues from ongoing operational management issues. Transitional issues include right-sizing the acquisition staff to the demands of the business, selection of staff from both the acquired pool and the open market, disposition of duplicate assets, and integration of processes to address the new business demands of the acquired business merged with your existing business.
Staff right-sizing addresses the scale economies that should be present in most acquisitions. For example, if an elevator service organization with ten service technicians can service 1,000 elevators in a market, an acquisition of 500 new elevator clients should require less than fifteen service technicians. Yet, due to scale diseconomy and lack of discipline, we may find that the acquired company had 500 elevators under service with six technicians. Once we determine that fourteen is the ideal number of technicians for the new service organization, we need to select those fourteen from the existing ten, the acquired six, and the countless technicians available on the open market to assure that we have a service organization that is not only right-sized but also optimally effective.
Similarly, some acquired assets will be surplus (do we need two phone systems? do we need all of these cubicles?) and others will be integrated into our operation.
For ongoing operation management, we need to consider the bandwidth available in our existing management structure. If we believe that our elevator service managers can manage seven elevator technicians, it is possible that we have two existing service managers plus one in the acquired organization for a total of three. With fourteen technicians, we should be able to operate with two, and we can select the two most effective managers.
Structure
Some acquisitions merely increase the size of an operation and do not require modification of management structure. A current service organization consisting of thirty-five technicians reporting to five managers reporting to a director can be easily expanded to forty technicians reporting to six managers reporting to the same director. But an increase of staff greater than fifty percent, or integration of duties very from those of the core team, can require complete reengineering of the org chart.
Entrepreneurs often agonize over the branding of acquisitions. Look forward and reason back. Every day that you operate a business, you are investing in the brand. If you know that you will eventually rebrand the acquisition, the time to do it is at the time of purchase. Otherwise, the period between acquisition and eventual rebranding will be confusing to consumers and will cause your business to invest energy into maintenance and development of a brand that you know you will eventually be abandoned. Further, if multiple acquisitions will occur over the course of years, customers do not want to hear “Thank you for calling Purnell Elevators, Elevators 4 You, Jane’s Speedy Lifts, L-A-V8-R Pros, and Shaft Systems. How may I direct your call?”. Keep in mind that the prior owners will have a great deal of pride in their brand and will passionately argue that customers will not want the brand to change.
Smile and nod, then do what is best for your business.
Hat tip to www.MergerIntegration.com, a great merger and acquisition integration resource.
