Mergers and Acquisitions as a Way of Dealing with Market Threats

Ram Jaulus, CEO of NGG and expert on disruptions in organizations, gives an overview of what CEOs should consider before acquisitions and mergers—parameters and considerations both old and new

“Disruption” has become a mainstay in today’s lexicon when it comes to organizations. How do we anticipate the next surprise? How are we going to deal with it? CEOs are looking to diversify their product portfolios, to encourage flexibility in their organizations and to embrace innovation both internally and externally—all as a way to manage in a disruptive world. One of the ways to cope in this reality is through mergers and acquisitions, combined with other activities.

When CEOs begin initiating the acquisitions process, there are a number of considerations to act as a guide:

  1. Economies of scale: Economies of scale enable you to deal with changes better, increase your reach to more segments of your customer base and overall strengthen your organization.
  2. Diversifying your product portfolio: The ability to offer a range of options at the endpoint and the ability to appeal to wider audiences bolsters your organization and boosts your chances of survival.
  3. Asset acquisition: When the acquired company has an asset that the buyer does not have—whether it is a brand that targets a particular audience, a key audience with variable habits, sources that the buyer does not have, or attractive representatives, products or technologies—any and all of these things are good for the organization.
  4. Access to new markets: Through the acquired company, the buying company gains access to activity in new markets, whether it’s a market of new products or a new geographical area.

Up until this point, we’ve noted the usual reasons-ones we’ve heard before. But in addition to those, here are some new and critical points to consider:

  1. Decentralizing business lines and creating organizational flexibility: This means buying out a competitor company without any intention of merging with them, rather, the contrary—to spread out your vulnerable risk points among parallel systems.
  2. Dividing the growth/potential engines into two separate systems: When a company has a growth engine but is unable to actualize it, the acquired company can be a good place for the line of business to take root and enable it to diversify the company’s activities.
  3. Internal disruption: Competition and internal motivation can be manufactured and then used as a way to challenge the company in different ways.

The more time passes and the higher the level of disruption reaches, the more we’ll see an increase in new reasons and new motivators that had not existed in the past.

Regardless of the path they take, organizations must consider these other factors:

  1. Synergy: How much synergy is required to balance the old and new organizations, and how does one ensure the right kind of integration?
  2. Cannibalization: How much do these companies overlap and how much can they obliterate each other?
  3. Reliability: How reliable is the acquisition? Will promises actually be upheld or will the whole reason why the acquisition was initiated in the first place fall through?
  4. Inclusiveness: Whether you’re planning a merger or planning to manage the acquired company independently, there is a range of critical parameters (key success factors, or KSF) that need to occur in order to manage the organization in its new incarnation.

Organizations initiate their buying processes by examining the acquired company through the parameters of due diligence, mainly in order to make a decision regarding the deal’s value and feasibility. CEOs often forget, or outright ignore, these components—the organizational, operational, infrastructural and sometimes commercial—which are the very factors that actually determine the success of the process, and which bring its potential to fruition. The key to making this work is to examine the internal workings of the organization—not just its bottom lines—and for the buyers to do their operational due diligence and not merely the financial one.

 

How to Merge Two Organizations and Live to Tell the Tale?
By |2018-09-09T09:02:19+03:006 September , 2018 |

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