Acquisitions – They’re Back!

After a three-year drought, during the second half of 2003 and continuing in the first quarter of 2004, mergers and acquisitions are back on strategic agendas. Although deal volumes are still well behind those of 2001 and 2000, this is a welcome recovery. According to a recent article in The Wall Street Journal, as a result of the improving economy, rising stock prices, two years of improving balance sheets, and the opening of financial markets, companies are beginning once again to think about growth via acquisition.

Even though companies are still cautious, which has lengthened transaction lead times, “proactive acquisition search” as a strategic growth initiative is back on the table. By pursuing acquisitions proactively companies can maintain greater control over the process, and increase their odds of success.

With over ten years of experience helping companies implement the disciplined process of proactive acquisition search, we have learned some important lessons worth repeating. Here are seven key principles that will enhance the business process and help maintain a realistic and practical approach.

1. The CEO must play an active role in all aspects of the acquisition process. Success depends on the complete support, participation and commitment of the senior officer.

2. Keep the acquisition search process alive and moving. Stop-and-go efforts present a picture of uncertainty and reflect a measure of indecision.

3. Be realistic, flexible and opportunistic in your approach to prospective candidates. Do not seek perfection in the process. Be prepared for surprises, and be ready to move quickly on new opportunities.

4. Employ a qualified outside resource. In addition to keeping your initiative confidential to avoid competition, an outside resource can extend your reach, add to your information base and enhance your creativity.

5. Do more target-by-target strategic thinking, and less quantitative analysis up front. Don’t substitute data for insights and ideas about the target company.

6. Approach the right person in the target company. This is not necessarily the most senior officer. Secure the support of the decision maker and they will help influence the rest of the organization.

7. Negotiate with at least three serious acquisition candidates at all times. This increases your objectivity, bolsters confidence and accelerates the process.