Should M&A be part of your 2018 growth strategy?
Companies looking to grow have two choices -- organic growth or acquisitions. Each has their pluses but there are also risks.
With the New Year just underway, this is a great time for every business leader to consider different approaches to their organization’s growth strategy. For many firms, the default is to grow organically. For others, mergers and acquisitions are the pursued path forward.
Both approaches have their clear advantages, albeit advantages balanced with potential drawbacks. While this article focuses on considerations around the applicability of M&A for your firm, I do want to take a moment to capture the broad strokes of organic growth.
In some ways, the appeal around organic growth as a growth strategy lies in what it is not – no dealing with the merging of different operational, financial, or cultural processes. Rather, time and energy is focused on understanding and growing your client base, reinvesting profits in both people and assets for new or larger revenue streams, and a keen eye on improving productivity to increase your firm’s bottom line.
But this path to growth comes with its challenges, the primary one being that organic growth takes time and constant attention to detail — whether it’s for new service or product development, testing, or growing your business development/marketing/sales engine for marketplace expansion.
And, such time-consuming processes can come with the risk that by the time a company develops a new technology or offering, customers’ needs may have changed – or the competition may have developed it first. Even with high quality services or products, the reward of organic growth can be slow and incremental. Lastly, firms growing organically must finance mistakes and bad timing on their own – no investor with deep pockets is available for bail.
A closer look at M&As
Growing your business inorganically of course refers to joining with another business through a merger or an acquisition. Perhaps the greatest advantage to this growth strategy is that of speed. A well-planned and executed merger or acquisition can give a company rapid access to new markets, new clients, and new sources of revenue. Second, firms under an M&A model often have a more stable financial profile because of the combined value of the merged entities. And third, the people side of the equation can be a tremendous boon to business as added expertise and skill sets are leveraged.
That being said, M&As come with certain special considerations:
- The cost of a merger or an acquisition introduces a great many variables and factors, and requires a thorough vetting and analysis of the business a company is planning to acquire in order to determine whether it’s a good fit and the price is right.
- Corporate culture. Most M&As require bringing together two different corporate cultures and workforces. Even if one’s existing staff and that of the acquired company don’t have a great deal of interaction, there may still be the potential for creating confusion among current and prospective employees about what the company is and what exactly it sells. For many companies acquiring other firms, the clash of cultures can present significant challenges. For proof, consider that the field of post-merger integration has become a thriving industry in and of itself. For companies that are going to invest significant amounts of capital in acquiring other companies, many see it as a non-negotiable investment to ensure that the two companies will blend together seamlessly, rather than leaving it to chance.
- Brand strength. If a merger or acquisition is planned carefully, and the company being acquired provides a service or makes a product that fits naturally with the acquirer’s existing offerings, there may be little or no market confusion or negative impacts on one’s brand and client relationships. But if the acquiring organization’s brand has to change significantly as a result of the merger, the company could risk confusing, or even losing, some of its most loyal clients.
- Workforce issues. Without effective planning, an M&A can negatively impact one’s workforce. Even long-term employees may grow disenchanted with the firm’s new direction, or find that their relevance to the organization has changed. To prevent such impacts, one of the fundamental strategies is communication with clients, as well as employees new and old.
The organization should think through each of the different audiences who have a stake in the firm and the concerns they may have, and prepare responses for each. Doing so can help the organization be proactive in sending out messages to address concerns before, during, and following the acquisition, and also allow the company’s leaders to frame the conversation and put it in the best possible light.
Keep your eyes on the prize
It takes vision, discipline, and conviction to step up to the next level of growth. Many firms will opt to keep nose to grindstone and continue doing business as usual.
And others will adopt a growth strategy that is fueled by the merger or acquisition of another firm, rebranding their services if necessary and going to market as larger, unified organizations. The key is to know why one is doing the M&A — and then do everything possible to maximize its benefits while minimizing its negative impacts.