Does Your Acquisition Process Measure Up?

by Apr 30, 2019Acquisitions

Acquisition: Is it a hobby or a process?

A lot of CEOs I talk with consider acquiring another company as part of their strategy for growth. But acquisitions are not a strategy — they are a way to execute your strategy, which might be to grow the business in a non-organic way, perhaps by expanding into new markets or geographies. I’ve written before that acquisition is one of a few different ways to accomplish this sort of goal.

The mistake I see entrepreneurial leaders make — especially those running companies under $100 million in revenue — is to get too involved in the acquisition process rather than spending their time on building an acquisition process. I get it: As CEOs, we think making an acquisition is a high-impact event and good use of our time. And if your company is only planning to do a single acquisition every few years, you might be right. But it’s important to understand this approach is more like a hobby than a true function of your role as a leader. Your valuable time would be better spent on developing the overall strategy for your business.

If your strategy involves expanding the business in ways that require you to make multiple acquisitions during a year, then it’s time to rethink how you attack that. If you want to get good at making acquisitions, it’s time to create a process. Let me explain.

I ran a company, for example, that was highly acquisitive. Since our strategy was to rapidly expand our product portfolio, we needed to make many acquisitions over a relatively short period of time. So, we formed a team whose entire focus was on finding targets for us to buy, performing their due diligence on the company, and then developing the integration plan for how we would make the acquisition fit with our business. My role was to help negotiate the original deal and sign off on it at the end, perhaps with a few critical decisions along the way.

We based our process on how larger companies approach acquisitions. I remember reading a story about how Cisco at its peak employed multiple teams who were dedicated to acquiring companies — sometimes as many as 150 a year — to drive their portfolio forward. Think about that: that’s just about an acquisition every other day. You simply can’t do that in a part-time role. Or, more accurately, you can’t do that volume of acquisitions well unless you nail down the process for making it work. In Cisco’s case, the teams would review the outcomes from each deal and learn from their mistakes, which helped them get better at it each time they made a deal. 

Another example is from the fast-casual restaurant industry. They create teams of managers, cooks, and waitstaff who travel around the country to open up new locations. Their job is to hire local talent and then train them on the restaurant’s policies and procedures until they move on to the next location. Some chains even have as many as four or even 10 of these kinds of teams as a way to execute their growth strategy. Since restaurant opening is a big driver of their growth, they have developed a robust process and surrounded it with the talent to execute it.

The result is they can do these openings extremely fast because it’s become such a highly refined process.

The truth is that if you are the one selling your business, you’d much rather be dealing with a team of experts as opposed to someone who is new to the acquisition game. Your probability of success will be much higher, and the transaction will likely happen much faster, as well.

So, if making multiple acquisitions is part of how you need to execute your strategy, think about how you can benefit from creating a repeatable process rather than treating acquisitions like a part-time hobby.