It is Better to Give than to Receive

I've read an interesting article in the Harvard Business Review by Roger Martin called M & A: The One Thing You Need to Get Right. He points out that all studies suggest that 70-90% of acquisitions end up destroying value and although the title oversells his idea, my experience does suggest there is a critical success factor that is often overlooked in our relentless focus on synergies and EDITDA multiples. In a nutshell he summarises his point as follows: "Companies that focus on what they are going to get from an acquisition are less likely to succeed than those that focus on what they have to give it".  

The article lists four areas where the acquiror can give something to its target. 

1. Be a smarter provider of capital. As an example lots of start up companies I see these days struggle to raise the finance to move their idea or project from development to deployment and their management can spend many months simply trying to raise funds whereas a larger company can generally fund these incremental projects from internal resources. 

2. Provide better managerial oversight.  I would express this as maybe wider or more experienced management rather than just better but I take the point that in some situations businesses have struggled under poor management and can be freed from that constraint.

3. Transfer valuable skills. As the article says "the skill should be critical to competitive advantage and more highly developed in the acquiror than in the acquisition". It reality this means a degree of honesty rarely found in the corporate world as you have to be completely objective on what skills you actually have and whether they are truly better than in the target. If these hurdles are meet then sensitivity is needed in handling the transfer and sensitivity is another attribute is short supply. When there is an honest assessment and a sensitive transfer then this can really create a lot of value.

4. Share valuable capabilities. In this case the sharing will probably happen in both directions with both give and take. It is certainly the case that larger companies can have capabilities, systems and assets  that smaller companies can utilise with no real increase in cost to the parent company. I also find that there is value creation in sharing networks of connections between businesses. 

I can think of examples from my corporate experience which illustrate some of these features such as the acquisition of Airtricty by SSE where the fledgling Irish energy supply business gained a lot by what SSE could bring and as a result grew tenfold in a few years. However, it also applies in the start up investment phase I now find myself involved with. Before investing I always ask myself; what can we add to this company by way of experience, connections and advice and in some cases even office space!

I guess that as in life so it is in M & A; it is better to give rather than to receive.