Use this quick gut-check to avoid M&A buyers remorse.
The close of the holiday season is generally signaled by a flood of marketing offers with drastically reduced pricing on everything from electronics to pet supplies. I wonder if anyone has ever calculated how much money is wasted by people who jump on great deals to purchase things they don’t need and will never use. What is the metric for buyer’s remorse?
Recently, I considered the same question when watching the flurry of Merger & Acquisition activity during the last quarter of 2021. Opportunities for both buyers and sellers were ripe, and for all the right reasons. The stock market has been bullish for over ten years — helping many businesses dramatically grow their net worth. More recently, stresses related to operating during the pandemic have made selling the business seem more attractive. Add to that the expected capital gains tax increase for 2022, and many successful business owners were looking for buyers ready to close the deal before the ball dropped in Times Square.
That’s all good. But I can’t help but wonder if buyers — ready to jump on a good deal — are looking beyond the easy metrics of ROI. That often happens when there’s a disruptive period, like the one we’re in now. I have witnessed occasions in which otherwise sound business people actually fall in love with “the deal” to the extent that they are willing to set aside their own strategic priorities to make the acquisition.
This is where the alarm should sound — complete with flashing warning lights.
Unless the new business venture aligns strategically with the parent company’s vision, it’s never a good deal. First, if it’s off strategy, it’s a distraction from the company’s true goals. The purchase could invite unexpected collateral damage when it syphons away resources that should be invested elsewhere. And any acquisition, even strategic ones, place a certain drain on leadership at all levels of the organization. Capable people with plenty to do only have a certain amount of bandwidth to nurture any new venture. And there must be a plan to bring the newly acquired personnel into the parent culture in a healthy way, or there is a very real risk that unwanted values and habits will infiltrate and destabilize what was once a healthy organization.
Without getting into a business-school analysis of what makes for a good M&A fit, here are a few simple gut-check questions I always ask when a seemingly great opportunity is on the table:
- How does the acquired business further our long-term strategic plan?
- How does it add more value for our customers right now?
- How will it help our customers do more, and achieve more, given their own operations and plans?
- How are we going to integrate this business into our own operation? Will there be overlaps or gaps in the service offering?
- What support (marketing, HR, technology, IT, etc.) will be required to integrate the new people in a way that grows the opportunity in a sustainable way?
An acquaintance once told me that there’s no good price for the wrong thing. I would amend that to say that no deal is a good deal if you’re not clear on how it will add value for your customers, your operation, and other stakeholders. If you can accelerate your company’s journey down its strategic road map by adding a product or service that’s missing from your portfolio, a right-priced acquisition can be a brilliant move. But just making room in your closet for a good deal can quickly become a bad deal.
Before you look at the price tag, take a strategic inventory. Buyer’s remorse never scales.
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