Are you being strategic or desperate?

A few weeks ago I was moderating a panel of industry executives when a member of the audience turned the tables on me and asked me a question:

What kind of merger and acquisition activity do you think we’ll see? What is going to drive the deals?

As the moderator, I don’t usually think about answering questions, so I was caught off guard a little and fell back on my standard answer: Yes, there will be lots of activity. The large defense companies have a lot of cash, so we’ll see some of that used to buy other companies to offset losses from defense cuts. We’ll also see companies making acquisitions to crack new markets, pick up new customers, or gain access to contracts.

Not really the most brilliant answer but after the session was over he came up to me told me the answer he was hoping to hear.

“I think we’re going to see deals that are either strategic or desperate,” he said.

His point was that there are a lot of companies running scared and making moves they might come to regret.

It was a great point and wish I had gotten his name. I only know he works for TASC.

Over the last few weeks I’ve thought about that comment and I think it applies to more than just M&A.

With the current market conditions driven by the budget, the deficit and shifting defense spending priorities, companies are scrambling to figure out how to continue to grow if they can or simply to survive.

The challenge from my perspective is how do you tell if a move, say a new hire, an acquisition or a contract pursuit, is a strategic act or an act of desperation?

M&A might be the easiest to spot by looking at the price tag and how it matches up with what is being acquired. For example, is the company moving into an adjacent market where it will have some familiarity with the customer and its mission? If the answer is yes, then to me that is strategic.

For me, it is a little tougher to separate the strategic from the desperate in the other areas. How can you tell if it is a good hire? When is a company overreaching on a contract pursuit?

I guess one sign is how many contracts a company bids on. It seems to me that in tough times, a company might need to be more selective about pursuits to make sure it gets a better return on its bid and proposal dollars. You might be wasting a lot of resources if you are trying to bid on everything that crosses the wire.

I wonder too if determining whether something is strategic or desperate is a matter of hindsight. Did the new hire bring in new business? Did the company win the contract and realize revenue from it?

The answer to those questions will only come with time, but in these tough times, the smart companies need to be asking now if their decisions are being driven by strategy or desperation.

How do your actions match up with your core values and objectives? You need to look at your decisions and be able to say definitively, this will help us build the company we want to be.

And those answers need to hold true whether the market is in a crisis or not.