When a Strategic Acquisition Makes Sense
Our business is probably similar to your business, in that our primary source of growth lies in the people we hire. We need to find quality people, build a quality team, and create a culture for them to succeed. If they succeed, then we succeed.
We have high standards for our team, in terms of skill set and attitude. Over the past year, however, we’ve found that we are finding fewer people who meet our standards. It’s been tougher to find highly-skilled, strategically-minded people, and when we do find someone, it’s harder to convince them to make a career move.
This leads us to consider an acquisition of a small firm. Although we don’t need more equipment, new technologies, or additional locations–all legitimate reasons to buy a company–we do need to grow the size and quality of our team. And we may be crazy enough to think that buying another strategic advisory firm is the best way to achieve that goal.
So we’ve found ourselves faced with the same due diligence we would advise our clients and portfolio companies to pursue when considering an acquisition. Specifically, buying another company makes sense if:
1) It results in the acquisition of a strategic asset or capability that is too costly or too difficult to build internally
2) It will enhance value growth beyond what the core business is able to deliver on its own
3) It can be acquired at a fair price
In our case, an acquisition would not necessarily be a slam-dunk according to those criteria, but it would have other attractive characteristics:
- We would acquire a quality team of individuals at all levels (which we need) who are already battle-tested
- These individuals would bring with them a new set of relationships, which would give us the opportunity to bring our capabilities to more clients and investors
- They would also bring new capabilities and new ways of thinking, which could help our business innovate and grow
However, we also understand the potentially significant downsides:
- Some, or even all, of the key talent might decide to leave after the acquisition
- We would likely pay a premium over the cost of hiring individuals directly
- We may find (after the fact) that some of the new team members don’t fit well into our culture
- The deal process may be a significant distraction to the continued growth of our business
Given these pros and cons, not any acquisition will do. We need to find the perfect fit, and we will need to invest significant time and effort to do so. In fact, there is a distinct possibility that we won’t find a single organization that meets our needs.
But we’ll keep looking, because the prospect of finding a company that would have a dramatic impact on our growth going forward is too important to ignore.
Send us your thoughts and experiences on acquisitions as a source of growth at email@example.com.
KARL STARK AND BILL STEWART | Columnist | Co-founders, Avondale
Karl Stark and Bill Stewart are managing directors and co-founders of Avondale, a strategic advisory firm focused on growing companies. Avondale, based in Chicago, is a high-growth company itself and is a two-time Inc. 500 honoree.