There are many different types of strategic acquisitions each offering different objectives. Most acquisitions are undertaken at least in part to acquire a new customer base. By buying a company in the same business but in a different geographic location, companies can easily integrate market presence, brand awareness, and market momentum. Another strategy is to buy a company that can help establish a presence for the acquiring company in a different market segment.
Another reason for a manufacturer to acquire another company is to improve profit margins through higher utilization rates for plants and equipment. A manufacturer that is operating at 60% of capacity might buy a smaller similar manufacturer, and then sell the acquired facility, but retain some of the equipment, raising overall capacity. This enables the manufacturer to add new customers and lower fixed expenses, which results in higher profit margins.
Often acquiring companies will buy a company with a complimentary product that is used by the same installed base of customers. Another reason for strategic acquisitions is acquiring new technology, an excellent growth strategy because it mitigates the R&D costs and speeds up the acquiring company’s time to market. Regardless of the reasons behind acquisitions, it is critical for senior management to annually give thought to the strategy of their business from product, market, geographic, and competitive perspectives in order to determine if such efforts are necessary to meet corporate objectives or achieve growth.
Once a target company has been chosen, an acquisition plan must be drafted that includes objectives, relevant industry trends, method for generating deal flow, and a timetable for deal completion. In addition, companies must put together an internal working team made up of representatives from all major departments, including from engineering, finance, sales, marketing, and operations. Outside experienced advisors, such as lawyers, accountants, investment bankers, and valuation experts can help facilitate the process.
Part of the acquisition plan must address the integration of processes and technology currently being used at both companies. IT integration activities fall into three categories: process, application, and infrastructure. Process integration activities are focused on identifying common or new business processes that will be used in the combined company. These process definitions then need to be supported through an integrated set of applications.
As a result of acquisition, many manufacturers end up with multiple CAD systems. A lack of interoperability between different CAD systems can impact sharing of design data and design collaboration efforts. By standardizing on one CAD system, the combined company benefits from facilitated collaboration, better design reuse, lower IT costs, lower software licensing fees, reduced hardware infrastructure costs, easier integration with PLM systems, and the ability to share best practices across the enterprise. As a result of all these benefits, CAD consolidation can ultimately help manufacturers speed time to market, reduce costs, and improve quality.
Avoiding Culture Shock
Though companies are often acquired for the synergies around brands, competencies or physical assets, the success of the merged organization may well hinge on whether or not steps have been taken to identify and retain the organization’s primary cultural underpinnings that support and maintain those valuable resources. By some estimates, 85% of failed acquisitions can be attributed to mismanagement of cultural issues.
Cultural cohesion is most often the critical asset in the eventual success or failure of the overall deal and the one that impacts the extent to which qualitative talent retention can be attained. The most forward thinking integration strategies also capture key pieces of elusive core competencies, such as an organization’s best practices, skills, knowledge bases, and routines.
When companies combine, there are bound to be changes for employees. Often redundant positions are eliminated. Beyond the fear about losing their jobs, workers in combined companies have the challenge of learning different procedures and becoming accustomed to new products and organizational structures. It is the responsibility of the integration team and senior managers of the acquiring/merged company to ease worker’s fears and facilitate the learning process to smooth out the inevitable bumps along the road to a successful acquisition.
Another reason for a manufacturer to acquire another company is to improve profit margins through higher utilization rates for plants and equipment. A manufacturer that is operating at 60% of capacity might buy a smaller similar manufacturer, and then sell the acquired facility, but retain some of the equipment, raising overall capacity. This enables the manufacturer to add new customers and lower fixed expenses, which results in higher profit margins.
Often acquiring companies will buy a company with a complimentary product that is used by the same installed base of customers. Another reason for strategic acquisitions is acquiring new technology, an excellent growth strategy because it mitigates the R&D costs and speeds up the acquiring company’s time to market. Regardless of the reasons behind acquisitions, it is critical for senior management to annually give thought to the strategy of their business from product, market, geographic, and competitive perspectives in order to determine if such efforts are necessary to meet corporate objectives or achieve growth.
Once a target company has been chosen, an acquisition plan must be drafted that includes objectives, relevant industry trends, method for generating deal flow, and a timetable for deal completion. In addition, companies must put together an internal working team made up of representatives from all major departments, including from engineering, finance, sales, marketing, and operations. Outside experienced advisors, such as lawyers, accountants, investment bankers, and valuation experts can help facilitate the process.
Part of the acquisition plan must address the integration of processes and technology currently being used at both companies. IT integration activities fall into three categories: process, application, and infrastructure. Process integration activities are focused on identifying common or new business processes that will be used in the combined company. These process definitions then need to be supported through an integrated set of applications.
As a result of acquisition, many manufacturers end up with multiple CAD systems. A lack of interoperability between different CAD systems can impact sharing of design data and design collaboration efforts. By standardizing on one CAD system, the combined company benefits from facilitated collaboration, better design reuse, lower IT costs, lower software licensing fees, reduced hardware infrastructure costs, easier integration with PLM systems, and the ability to share best practices across the enterprise. As a result of all these benefits, CAD consolidation can ultimately help manufacturers speed time to market, reduce costs, and improve quality.
Avoiding Culture Shock
Though companies are often acquired for the synergies around brands, competencies or physical assets, the success of the merged organization may well hinge on whether or not steps have been taken to identify and retain the organization’s primary cultural underpinnings that support and maintain those valuable resources. By some estimates, 85% of failed acquisitions can be attributed to mismanagement of cultural issues.
Cultural cohesion is most often the critical asset in the eventual success or failure of the overall deal and the one that impacts the extent to which qualitative talent retention can be attained. The most forward thinking integration strategies also capture key pieces of elusive core competencies, such as an organization’s best practices, skills, knowledge bases, and routines.
When companies combine, there are bound to be changes for employees. Often redundant positions are eliminated. Beyond the fear about losing their jobs, workers in combined companies have the challenge of learning different procedures and becoming accustomed to new products and organizational structures. It is the responsibility of the integration team and senior managers of the acquiring/merged company to ease worker’s fears and facilitate the learning process to smooth out the inevitable bumps along the road to a successful acquisition.
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