The Anatomy of an Acquisition is a three-part series with the goal of demystifying the acquisition process by offering an inside view into the mindset of a corporate acquisition team.
IHS, Inc. is the world's leading provider of information, analytics, and expertise to decision-makers in high capital expenditure industries. Founded in 1959 and public since 2005, IHS has acquired 70 companies in the last decade. I sat down with three IHS employees who have each been part of 20--30 acquisitions over the last decade: Sheri Rhodine, Vice President of Integrated Marketing; Michael DeJesus, Vice President of Advanced Analytics; and Jenean Fields-Hansen, Director of Marketing Operations.*
I often hear from entrepreneurs eager to sell their start-ups with questions that range from wanting to understand the due diligence process to getting inside information into what they can do to get the best deal for their companies.
Before diving headfirst into the M&A pond, Rhodine, DeJesus, and Fields-Hansen believe that founding teams need to consider three ways to ready themselves and their teams for an acquisition. Here's what they had to say:
Design your business with your exit in mind. While your passion for your business should be the driving force throughout the start-up lifecycle, if you know you may want to be acquired, be deliberate in how you design your business structures.
"I often see resource designs and workflows that are more complicated, cumbersome and convoluted than necessary. While this can happen as your business grows, it's not a good practice. If you are intending on exiting through acquisition, be deliberate in creating and growing a structure that ties easily back to the revenue model," says Fields-Hansen.
Key take-away:No one wants to inherit a mess. As you design your business and as your business grows, a good rule-of-thumb is to do a gut-check by thinking about how cash flows through your organization. Do a backwards value-chain, from customer delivery back to your product or service development staff, including every step in between. Make sure there are no unnecessary steps. Invest in people, processes, and technology that support only those functions core to your business short-, mid-, and long-term strategies and deliver customer value.
Selling your soul is not the answer. You can have the best product on the market, but if your start-up culture does not align with the values of a potential acquirer, you may face some issues. Faking your culture, however, is not the answer, either.
"Cultural evaluation is an important part of our acquisition process. I was once interviewing the CEO of a potential acquisition pretty early on in the process. Because he knew that our corporate culture values integrity and empathy, the CEO spent a lot of time talking about the importance of taking care of his employees. A few hours later he asked my colleague and I how many people he would have to get rid of in order to make the deal happen. True colors have a way of showing themselves," says DeJesus.
Key take-away: If you are selling your soul for the almighty dollar, no one wants to buy it. When it comes to discussions during the acquisition process, the "how" is just as important as the "what". Pretending to be something you are not just so your potential buyers like you rarely works. The due diligence process is long. You and your team can only fake it for so long. Be honest about what you want. If that CEO had set the stage early on that he was highly motivated to sell and would work with the acquiring team to design the best deal for both sides, he would have had a better shot at being acquired.
Don't underestimate the emotional toll. "The degree of behavioral change and cultural fit can have a massive impact on the staff of acquired companies," says Rhodine. While cultural fit is a concern, Rhodine looks for the flexibility and willingness to adopt a new culture. "After an acquisition, the daily roles and responsibilities of the new staff may cross multiple functional areas and geographies. Seeing what the potential new executives and staff gravitate toward, what they talk about most, where they find more passion, and what they neglect to talk about it is incredibly insightful. It important to get a gut feel for how willing the executives and key staff members are to adapt in their new environment."
Key take-away: So much work has to happenin order for an acquisition to be fully executed. It's easy to get caught up in the tangible numbers and processes. Yet, when it comes to success, it's really the softer issues, like culture, that can make the biggest difference. If you know that an acquisition may be in your future, take care to hire employees who are flexible, and able to adapt to your growing and environment. And remember, your staff is looking at you for their cues. No one is expecting you to be something you are not. If you are willing to adapt your authentic leadership style to the context of your new environment, chances are your staff will as well.
*Disclosure: I have been at IHS for the past 20 months. This article represents my personal work and is in no way representative of the perspective of IHS.