5 ways to evaluate the nonfinancial elements of an acquisition decision
May 06, 2015
Jason Popp, GES
The following post was written by Jason Popp, executive vice president of international at GES, a global event marketing company.
When a merger or an acquisition is on the table, hard facts and complex financials are under the microscope. While these are critical parts of an acquisition, they’re not the only things to consider. Once the dust settles, it’s often the nonfinancial aspects that will determine whether the deal will make it in the long run.
Consider this: While more and more mergers and acquisitions are taking place, 83 percentof companies fail to meet the goals that have been set. For example, Kraft’s 2010 acquisition of U.K. chocolate maker Cadbury went so far off course that it inspired arevision of the U.K.’s Takeover Code—a set of regulations that protects the interests and rights of both the acquiring and the target companies.
Kraft made promises it couldn’t keep, and it failed to consider company culture. The company lost community support by shutting down a major Cadbury factory that it said would remain open. The success of Kraft’s acquisition clearly depended on more than just financial matters.
But gathering the information you need to evaluate the nonfinancial elements of an acquisition is easier said than done. Here are five concrete ways to evaluate the softer side of your next acquisition:
1. Watch its pre-deal behavior.
The real test of a merger or an acquisition doesn’t always come at the moment of a financial handover. Instead, it’s important to watch how your potential target behaves during the deal-making process. I once observed a potential target’s management team members argue so much amongst themselves during the negotiation process that I killed the deal.
If you love how the team does business before you shake hands, that’s a good sign for things to come. But if its communication style or level of transparency worries you early on, it’s likely to become a bigger problem in the future.
2. Do due diligence on your due diligence.
Whether you like it or not, the information you receive from your target may be limited. You’ll have to poke around, interview different members of the team, and ensure that you are asking for items (such as minutes from management meetings or marketing collateral) to help you uncover the nonfinancial elements of the company.
3. Merge with its company culture.
You’re not just transacting finances when you make an acquisition; you’re also merging cultures. It’s vital that you learn all you can about what makes your target’s team tick. This includes everything from how meetings are conducted to how and when team members communicate.
4. Spend time outside the office.
You need to spend time with the target’s team outside of the necessary financial meetings and logistical phone calls. In some cases, I have learned more during dinner with the management team than I have after an entire day of scrutinizing stacks of documents.
5. Woo its community.
This is an area where Kraft went wrong. The company failed because it didn’t spend time befriending the Cadbury community. Instead, its presence stirred up protests by the townspeople who credited Cadbury with giving them everything from their schools to their roads. Kraft underestimated the power of Cadbury’s homegrown industry and didn’t realize how its target perceived it.
Take the time to get to know the target’s customer base, employees, and neighborhood. Win them over; if the target doesn’t respect the acquiring company, your merged entity will be doomed to failure, no matter how good the financials look on paper.
Jason Popp is the executive vice president of international at GES, a global event marketing company with a long history of connecting people through live events. With more than 20 years of global leadership experience, he is able to seamlessly combine operational and direct P&L management with rigorous strategic thinking.