Inorganic Growth: A Basic Strategy

There are lots of very complex Mergers and Acquisitions Strategies.  Some of them are multi-step or require a significant amount of Business Transformation expertise.  I want to provide here a solid strategy that is relatively straightforward to implement.

Let me call this Strategy the "Cost Replacement" strategy.  When two companies merge, there is some extra cost associated with the transaction and integration of the businesses.  If we set that aside, there will be a number of redundancies - people in the same position in both companies.  There is also likely duplicate spending beyond that.  For example, you won't need to file 2 tax returns.  What this means is that there are "synergy savings".  These are the natural savings from being bigger.  Our goal is to spend these savings wisely.

Let me use an straightforward example for small businesses.  In most small businesses, the Owner/CEO is the primary salesperson for the firm.  Now that the two firms are one, you can replace the outgoing CEO with at least one permanent Salesperson - perhaps more.  If you do that, then you will have replaced a more expensive position with a less expensive position, and gotten a person dedicated 100% to Sales. This approach can lead to significant business increases if executed well.

An overall methodology would be to calculate all the synergy savings and put them in a bucket.  This is before we rationalize things like advertising budgets.  That pool of money creates the ability to hire people to grow the business.  So when you go into this, you need to understand where your highest leverage positions are.  For most small businesses this will be in Sales and Marketing.

This strategy is not the most elegant or precise model, but it is simple and really executable.  The big challenge for this or any model to understand where the best leverage in the business is.  This requires an honest understanding of the business.  I worked in one company that was acquired where the entire Sales team was dismissed 3 months after the deal closed.  And they wondered why Sales decreased.  They had thought they had this finely tuned Sales team.  Of course, if that were true it would be saying the current team was lazy.  They should have been working all day to close deals with the existing products.  It makes no sense to assume a Sales team can pick up a new product, push this product effectively, and remain as productive as they are.  This is true even if you are buying a competitor.  Part of the reason to do this is to have more feet on the street landing customers.  In any case, that leverage is where we go next.

Have a great day!
 

Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

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