Successful implementation of an acquisition – case study

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Context

An international company, with ambitions to grow through international acquisition, was undertaking one of the first larger-scale acquisitions of a company that was one of the regional market leaders in a country where the international company did not trade.

Problems

The potential acquisition was looking for a strategic partner, rather than an acquirer, and would not agree to sell a majority stake. The Chairman of the potential acquisition insisted on remaining in position. The acquiring company had not previously completed an acquisition of such scale, and did not have many people with merger and acquisition (M&A) experience.

Solution

The international company secured the services of external advisers. A due diligence team was assembled from within the company and seconded to work with the acquisition target in country for an initial period of 3 months. The team covered three major work streams – Finance, Sales & Marketing and Supply Chain. Due Diligence was completed and a valuation was agreed with the external advisers. Negotiations with the potential acquisition resulted in a 50:50 shareholding. The Chairman was confirmed as staying in post and it was agreed that a new Managing Director would be recruited in-country. Once the Managing Director was in post, the Due Diligence team was disbanded, but two members of that team were then assigned on long-term assignment to the new company as Finance Director and Logistics Director. This ensured continuity and ownership of the action plans for improvement drawn up during the Due Diligence phase.

The Due Diligence action plans were successfully implemented in the first year, with additional temporary expert resource being drafted in from the parent company when requested. In parallel, the two assignees and the new Managing Director drew up a longer-term and more encompassing strategy for the company. The strategy recommended controlled withdrawal from certain markets and product lines, utilising some of the products and capabilities of the parent company, re-engineering of product development, and investments in new markets and sales channels. The plan was agreed by the parent company and acquisition of all the share capital was negotiated with the Chairman and other shareholders. The decision was taken that the brand of the local company was strong and valuable in the local market and so was part of the acquisition and was retained.

Results

  • Gained leading market share in the country, growing annual revenues.
  • Re-engineered the company out of core development and base manufacturing; reduced cost base by over 20%, including halving the overall cost of the Supply Division.
  • Reduced product cost by 15%
  • Withdrew from some target vertical markets, enabling the refocus of sales
  • Gained valuable M&A experience and re-deployable human capital. Team members involved in this acquisition were then used on other acquisitions in live and advisory roles.

Takeaways

  • Using the Due Diligence team on the implementation of the acquisition and the improvement plans drawn up during Due Diligence provides continuity and improves ownership. Implementation of Due Diligence action plans was completed ahead of schedule, and far in advance of what a new implementation team would likely have achieved.
  • Questions that were never fully answered during Due Diligence continued to be asked by the same people during implementation. It is rare for all questions to be completely answered during Due Diligence – the 80/20 rule is used sensibly. In this case, the remaining 20 were answered during the implementation phase, meaning the realisation of almost all of the possible “up-sides” identified during Due Diligence.
  • It is important to recognise when the organisation gains new skills, and to utilise those with the new skills in ways that spread them wider through the organisation. This was achieved by using team members on subsequent M&A activities.
  • Use expert resources from the parent company wisely and judiciously, let the team on the ground ask for what they need rather than telling them what you think they should have. New acquisitions can be honey pots for visiting corporate bees!
  • Really understand what you have acquired before implementing “corporate best practice.” It may be you have acquired better practice!

See also www.dancewiththeelephants.com

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