Blog - Strategy

Why Acquire at all?

Posted by Scott Newton on May 18, 2012 4:53:00 PM

One area we are asked about frequently is acquisitions- yes or no?

Why to acquire?

The decision for an acquisition is not easy- it is one alternative to developing capabilities organically however can be costly and also difficult to integrate.

So what are the steps required to approve an acquisition?

1- Know your strategy and specifically your competitive advantage.

2- Understand how the target will assist you in meeting your highest priority strategic emphasis goals

3- Test and validate the real NPV of the acquisition and measure its sustainability

4- Calculate the costs of integration in terms of not only money but also the internal resources required to achieve objectives

5- Recheck steps one through four

Once an acquisition has been approved- still be prepared to say no and walk away.  Your decision was based on a series of assumptions relative to the corporate strategy you have developed- if those assumptions cannot be verified it is always an alternative to close down the negotiation.  The costly acquisitions we have observed which do not work are typically due to a desire to proceed forward even though the DD was not validated- a perfect example of sunk costs considered as going concerns.