CCO at TELUS International, a global customer experience provider powered by next-gen digital solutions.
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Acquisitions can be a critical part of a company’s strategic growth. They can help you expand your business geographically, add new skills and capabilities to your existing team, grow technology offerings and, in many cases, exponentially increase your market presence.
For example, my company started with the acquisition of a company in the Philippines in 2005 with a team of 1,500. Through numerous strategic acquisitions over the past 15 years, accompanied by rapid organic growth, we have evolved to more than 50,000 team members in over 25 countries.
Without a doubt, acquisitions have helped us significantly evolve our business. But the effective execution of an inorganic growth strategy isn’t without challenges. In fact, according to the Harvard Business Review, 70% to 90% of acquisitions fail (registration required). Whether there’s a culture clash, your corporate values diverge or the businesses fail to integrate successfully to support growth, it can be hard to get acquisitions right. Here are some insights I’ve gathered over the course of my company’s journey.
Change your mindset about the purpose of acquisitions.
Remember that an acquisition isn’t a growth strategy on its own, but a single part of an overall strategy. To determine how acquisitions might add to your business, look at where you want to be and the timeframe you have for getting there. Having an understanding of your strategic pacing will help you determine the gaps in your business and whether you should grow the capability internally, make a move to acquire that capability or plan for a hybrid approach.
It’s also important to understand that the target company has its own sense of momentum created by its own culture, solutions and expertise in its market. Ask yourself: How can I help this company continue to grow and enhance what it’s already great at, and how do their goals fit into my strategy? These elements can make future conversations with potential organizations more constructive and set the groundwork for success.
Consider cultural fit.
I can’t stress this point enough. The due diligence process is for more than just poring over financial records and client lists; it’s an opportunity to get to know the management team, their values and the corporate culture they have fostered across the expanded teams.
Culture is reflected in a lot of ways — from how day-to-day decisions are made to the company’s overall leadership style. Compare the target’s approach to how your organization makes decisions. It’s also important to consider new cultural elements a target brings to the table and the effect that could have. For instance, teams that are used to daily informal huddles and social events with their colleagues might struggle with feelings of isolation when their colleagues and leaders are spread across countries and time zones with more limited interactions.
Values also matter. Businesses can have very different ideas about corporate social responsibility. A critical step is to look at the processes the target has in place to determine employee sentiment, diversity initiatives and other cultural elements to determine how they align with your company’s values.
Organizational structures and cultural norms vary in different countries. So if you’re considering an acquisition in another country, in addition to corporate culture, consider the role of societal culture on the way leaders and teams interact and how operations run, and how that may or may not be aligned between the two companies. Cultural integration can be an extended post-merger integration process with successes and challenges along the way, but when it’s done well, the impact can be powerful and enduring.
Examine the pros and cons of a new market.
Acquisition opportunities often bring a new set of challenges to face. In exchange for gaining access to new industry verticals, technological innovation, robust product offerings, language capabilities and markets, acquisitions can often simultaneously present different regulatory frameworks or employee rights issues, currency differences, tax complexities or geopolitical risks. There are significant nuances to balance when deciding if the predicted benefits of an acquisition opportunity outweigh the extra time, effort and resources required to address the complexities presented.
Know the financial implications.
Financial considerations require careful review during the due diligence process, but you can estimate the value to your business through modeling the economic benefits of the services, solutions and clients a target has access to. Maybe the acquisition gains you wallet share from competitors, or maybe it opens up a new potential revenue stream outside of your current verticals. Moreover, consider the value created with the integrations of new products and services into your existing lineup. Acquisitions can also open up the opportunity to cross-sell to existing customers, in addition to enhancing your brand’s valuation as a whole.
Either way, the key to getting value from an acquisition often means tapping into a market before it becomes mainstream. Researching market trends to anticipate where the industry will be in the years ahead and assuming some level of calculated risk can help you realize future financial success. Always having an active funnel of potential investments based on this prospective information can better position you to capitalize on trends before the upswing.
Like most aspects of business, acquisitions do carry risks. But, by being thoughtful and strategic and basing decisions on robust diligence, especially around culture fit and value alignment, your business can come out of an acquisition stronger than ever.
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