Like any other corporate activity, acquisitions are beneficial if they are direct and unequivocal in accelerating the profit of the acquiring company. Acquisitions that solely seek to consolidate shared services and reduce costs are relatively common in the construction industry.
This idea for growing profit within the target acquisition is considered a narrow view of the potential of an acquisition. The integration of a planned acquisition target might result in different techniques to increase profit.
This final article in the recent mergers and acquisition (M&A) series1 will focus on how successful companies apply structured approaches to smooth the integration of acquisitions to boost profitability. This article will also outline the standard construction-related acquisition strategies that have been devised for management teams.
Take Out a Competitor
Usually referred to as a “killer acquisition,” this activity is used to eliminate a current competitor or a perceived future competitor. When a company acquires a competitor, it immediately increases top-line revenue, reduces the number of feasible options for customers, and may increase the client base, providing greater pricing leverage. A company can achieve profitability in a short amount of time through such synergies as economies of scale, skilled employees, integrated client lists, contractor relationships, and sales and bid efficiencies.
As is the case with most M&A deals, the majority of the value gained by removing a rival is retained by the seller, not the buyer. However, by reducing the number of competitors in the market, all competitors benefit from a reduced competitive field.
Keeping existing senior management in their current roles is the best way to maintain consistency. Their in-depth understanding of both the business and employees significantly impacts the establishment of a solid cultural fit. However, it is crucial to remain alert and notice early if the new acquisition is not tracking closely to the integration plan. Three primary areas should be monitored where the company integration falters: financial goal achievement, communication, and exit of key employees.
Financial Goal Achievement
To achieve their financial goals, companies must identify the principal sources of value and critical risks in their acquisitions before setting integration priorities. Many acquirers designate someone to oversee the integration, but they do not begin planning how the new company will be merged until after the acquisition has been completed.
Establishing a clear plan and goals must happen before deal closure. However, management transfer after the integration is complete is often mismanaged or fails to meet established efficiency goals for the new acquisition. And, when integration takes up too much time and effort, managers can become distracted from their essential daily responsibilities. Undisciplined integration efforts interfere with the core business in other cases and lead to conflicting and confusing conversations with customers.
Any of these issues will prevent companies from realizing integration targets.