At the ACG Capital Connection in Detroit on September 20th, a panel discussed the 10 reasons for deal (acquisitions, financings, mergers, etc.) success, deal failures, deal early exits and deal mistakes/mishaps. The most common theme of a successful investment versus a failed investment are trust and chemistry of the management team, proper due diligence and accuracy/adequacy of financial reporting, strength of financial leadership and financial discipline.
Economic and financial studies come up short in identifying specific acquisition strategies that create ongoing value. However, companies have successfully deployed acquisitions to grow revenues, cash flow and create increased value. The rationale for an acquisition that creates value typically fits one of the following five strategies:
- Improves the target company’s performance;
- Consolidates to remove excess capacity from an industry;
- Accelerates market access for target’s or buyer’s products/services;
- Acquires skills or technologies faster or at a lower cost than can be built organically;
- Picks industry/market winners early and helps them to develop their business.