(Practical Solutions to Difficult Problems) Can an acquisition jump start your overseas expansion? - Jeremy Gray
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The use of mergers and acquisitions (M&A) to accelerate growth is a well-established business strategy, and offers a company the potential to enter new markets, access top talent and reduce costs. By merging with or acquiring another firm, a business can often achieve these goals more quickly and easily than with a solo expansion. These are not automatic outcomes however, and sometimes an M&A deal will not deliver as expected or can bring more complexity than anticipated.
To improve your chances of success there are three fundamentals you must focus on:
Of these the first and third are most important. If you overpay it will not wreck the deal, but selecting the wrong target and a poorly prepared and/or poorly implemented integration plan will put the future success of your deal in jeopardy.
When considering the size of the company for an overseas deal I would focus on the
number of employees and your ability to communicate with them. You need to be sure your message can reach each and every employee. And do not forget there may be a language barrier.
As you are entering a new market you should stay close to the industry you know. Do not add to the complications by entering a new business sector. If the company has some business in a market that is unfamiliar to you but is in an adjacent market that is acceptable.
For the purposes of overseas expansion, it is most important to focus on culture. The country’s culture, the business culture in the marketplace and finally the target company’s own culture.
If you like the country you are entering and respect the culture you are off to a good start. You will win your new employees' trust more rapidly. In Asia trust has to be earned and can take time.
In many parts of Asia there is less reliance on contracts and more on emphasis on mutual trust.
Is asking questions of managers part of the country's culture? If not make sure you redouble your efforts to provide effective communication channels.
Meet the owner or key managers to understand their philosophy of doing business. Take the time to understand how they do business and whether it matches your company style. And this is the time to do a little external background research, hire a professional company to make enquiries about the target's reputation within the industry. Do they act ethically? How is the owner or the key managers perceived?
When it comes to valuation you will have to pay more than the owners can make running it themselves. That means there should be synergies, either revenue or cost synergies.
Misunderstanding and therefore over valuing synergies is a common mistake. Acquirers often enter a deal with an overly optimistic belief in the synergies that can be achieved and the time to bring the synergies to fruition.
And be aware of negative synergies, you may not be able to sustain some of the acquired company’s sales tactics which might result in lost sales. The acquired company maybe able to sail closer to the edge of the law than you can.
Conduct your due diligence or DD. Both formal and informal.
Formal DD is where you hire lawyers and accounting firms to conduct research to ensure the accounts accurately reflect the status of the business, that the company operates within compliance with laws and regulations of the country etc. This is expensive but do hire quality companies who are knowledgeable with the ins and outs of doing business in the country to do this work.
Do your own informal DD into the company’s reputation, how do they go to market> the quality of their products, the experience of their staff.
Prepare a solid integration plan. And do not neglect the fact that your employees may be finding themselves running an international business for the first time in their careers.
Plan the integration but do not rush it. Your objective in the first few weeks or months is to keep the business running, No more and no less, Safety is an exception. A merger or acquisition is a distraction to employees and when people get distracted accidents happen. If there are safety risks, fix them at once.
Covid may have provided opportunities to acquire companies at a lower valuation. Fundamentally sound companies may be cash strapped, either to stay in business, or to move forward with their expansion plans.
Resources. Links to earlier shows on M&A:
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