In acquisitions, it pays to remember the little guys

16 10 2009

If you’re in the market for acquisitions, consider maximizing your opportunity for transformation by making a set of small acquisitions that can be rapidly integrated, add growth power to your core business, and – for a bit of downside protection – be spun out or written off if unsuccessful.

Are you ready to acquire ahead of economic recovery?

Are you ready to acquire ahead of economic recovery?

Billion dollar mergers have laced the headlines recently, giving hope for a revitalized M&A market and indicating corporate growth expectations have indicated now is an opportune time to empty company treasuries while prices are low and growth is imminent.  Some of the largest acquisitions announced or publicly acknowledged include:

Dell desires Perot Systems for $3.9B

Xerox to buy Affiliated Computer Services (ACS) for $6.4B

Cisco buying Tandberg for $3B

These mega-deals are a boon to the economy, providing motivation for corporate activity and jobs for skilled practitioners in acquisition strategy and integration.  Deals of this size can certainly transform a company, but many mega-deals represent the purchase of an adjacency growth sector – not a growth of a core business.  Because of the specific difficulties of integrating a massive adjacency, these types of acquisitions are enormously challenging and fraught with failure.  Purchases of this type are likely to take two to ten years to fully integrate and reap the growth prospects of the combined firm, all while drawing key resources away from growth investments specific to each party’s core business.

If you’re in the market for acquisitions, consider maximizing your opportunity for transformation by making a set of small acquisitions that can be rapidly integrated, add growth power to your core business, and – for a bit of downside protection – be spun out or written off if unsuccessful.

Consider the good fortunes of Best Buy who, coming out of the dot-com recession, purchased the teensy-tiny residential business of Geek Squad.  At the time, Geek Squad had about 35 “agents” in just three cities – hardly the scale to drive business growth at a national retailer.  But Best Buy saw the “story” asset of Geek Squad with the instant availability of potential “agents” all over the country – people who knew computers and technology, and could learn to be part of a “story” of outstanding customer service.

Best Buy knew its core business was driven by customer loyalty, and in-store services was a core competency they needed more of to attract and retain the best customers.  Geek Squad was rapidly integrated and rolled out incredibly effectively, delivering high-margin results quickly and positioning Best Buy as the trusted vendor and installer of home theaters – a core revenue and margin driver for the firm, which also owns high end Magnolia Home Theater.

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