Taking over another company can quickly turn from an exciting venture into a nightmare if the deal is not properly thought through and resources are not in place. Along with the excitement of expanding and the new possibilities for your bigger company, comes a minefield of potential dangers. We detail the top ten danger zones and advise how you can avoid them.
Inadequate due diligence
There is no bigger mistake you can make than not doing your research about the company you wish to buy. Everyone knows it's important to look through the books and be clear about what money is coming into the business and what money is going out. But on its own this is insufficient. You also need to be clear about what contracts exist with the company's suppliers and customers, what liabilities the company has, and what market legislation exists in the sector you're buying into. Failure to check all of these factors in detail could result in lawsuits, unanticipated expenditure, and loss of sales.
Ignoring the target's culture
When you're buying a company with the intention of incorporating it into your existing organisation, one of two things must happen. Either you must mould your existing company to fit in with the corporate culture of the new company, or the new company must adapt to your own model. What you can't do is accommodate everyone. The two companies will inevitably have differences in management styles, pay scales, office procedures, and even differences in things such as the extent to which staff members socialise with each other, and whether staff are expected to work long hours. You need to establish a clear and consistent policy to encompass all of these things. To an extent you must allow for two-way leverage, i.e. the takeover target should be allowed a say in the construction of the new policy, but ultimately there should be a dominant culture in order to drive the new organisation forward.
Forgetting to tell your customers
Do not be under any illusions about how your competitors will react when you announce you are launching a takeover of another company. You would be very lucky indeed if there were not some attempt to persuade your customers to jump ship. All your competitors need to do is beat you to the phone to tell your customers why they should move their custom away from you. You need to make those calls before the competition do. Reassure your customers that the takeover is in their best interests and explain why they can expect an even better product or service from you as a result of the takeover.
Failing to retain key employees
As well as moving in on your customers, it is likely your competitors may also try to poach your key employees once it is known you're going to be involved in a takeover. Competitors will often play on your staff's insecurities about your intentions as the purchaser and, just like with your customers, try to persuade them to move away from you. The loss of key staff can take a severe toll on the value of the company. What you have to do in this situation is very simple. Give your key staff as much information about the takeover as possible, including assurances that their jobs are safe, and keep them informed at every stage of the takeover process. If jobs are to be lost, let it be known as soon as possible which jobs these are, and reassure the others their jobs are safe. The last thing you want is for uncertainty and lack of information to create unease and rumours amongst your staff. If they aren't made aware of the positive changes that are going to take place in their working environment they will be vulnerable to approaches from competitors.
It sounds obvious, but make sure you don't pay more than the target company is worth. Particularly with e-businesses, the market value of a company can tend to be based on what the company could be rather than what it is. This may be acceptable to you if you have reason to believe you can drive the company forward to maximise its full potential and make a good return on your investment. The risk with this strategy is one of over-estimating current market conditions. Look at what your competitors are paying for similar companies and if you're paying more, ask yourself why. The target is worth no more than the value it can add to your existing business.
Nothing kills an organisation like inefficiency. Fragmented, misdirected leadership will result in a slow, clunky organisation, wasting time and money. Be very clear from the start who will be in charge of what, and implement a system to monitor everyone's progress. Synergy in leadership is crucial because strong, unified leadership is what drives companies forward. When leaders from two companies are forming a new leadership team everyone must be clear about what their new role encompasses. It is also important for the CEO to address any concerns the leaders may have, because a disgruntled leader in a position of some authority is capable of damaging the takeover process to the extent where it can't go ahead.
Not understanding foreign markets
Cross-border takeovers are the most risky of all. Added to the considerable number of concerns you would have about a domestic takeover is the fact that you could get it badly wrong if you don't understand the market in the country you're entering. Never assume that an industry in another country works in the same way as that industry works in the UK. There could be swathes of legislation affecting the way the industry operates in the other country. You must also be careful not to make unsubstantiated assumptions about customer behaviour and attributes in the other country.
Poor IT integration
As part of the due diligence process you should ask the right questions about the IT systems in the company you want to take over. Systems integration can make or break a takeover because companies rely on technology to facilitate just about everything. Do not just assume you can swap one system out and replace it with another things are rarely so simple. When you start changing a company's IT system, you will inevitably be changing a fundamental part of how that business operates. This doesn't have to be a bad thing, but you must make sure the changes are well thought-out and planned in advance of the takeover so they can be followed through smoothly. You must consider the impact and costs of IT integration early on in the takeover process.
Failed brand consolidation
Brand consolidation is a crucial part of the takeover process and it is also one of the hardest to achieve. Brands should convey functional and emotional benefits, eg. value for money, reliability, and assurance of quality. If the purpose of the takeover is to achieve scale you should move to consolidate as soon as possible, and you must get your marketing people involved in order to do so. Brands are very expensive to support and, post-takeover, you may want to create a single new brand to promote your products or services. If you have to choose one brand to encompass both companies, choose the stronger one. Alternatively, you may be looking to offer a portfolio of brands to encompass a wider scope. Either way, brands make up part of a company's assets and your marketing team must be clear about which ones they are expected to transition, cull completely, or bring under an 'umbrella'.
Mis-timing the takeover process
Prevailing wisdom will say speed is of the essence when taking over a company. But with the majority of takeovers ending in failure it is time to rethink this notion. Spending too long on the deal can be fatal for the running of the business something that should never be overlooked. It is also true that efficiency is needed when you are integrating systems and practices in two companies, but it is important to prioritise. Some elements need to be integrated with more urgency than others, so instead of setting a strict timetable for all areas of the company to integrate by a certain date, you should allow each part to pursue consolidation and integration at its own speed. Moving too quickly in some areas can be just as disastrous as moving too slowly.
Takeovers rarely run as smoothly as hoped, so it is important that you have a timetable of how the integration should progress. Implement the steps that are necessary to achieve your key objectives. These will probably include: securing and improving customer relationships, establishing the trust and motivation of the employees, and improving the financial performance of the business. Regular reviews of the integration should be performed over at least two years to ensure it moves ahead as planned.
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