What type of company makes a good target to be acquired? There are the obvious revenue, strategic, market, product, and R&D considerations. Those are all opportunity plays and are in themselves good reasons, but what about the risk?
How do you decide in advance which companies can be acquired without being destroyed? For that, there is the often overlooked perspective of fragility.
As Nassim Taleb points out in Antifragile:
If everything top-down fragilizes and blocks antifragility and growth, everything bottom-up thrives under the right amount of stress and disorder. The process of discovery (or innovation, or technological progress) itself depends on antifragile tinkering, aggressive risk bearing rather than formal education.
So the big question becomes, “What decides if a company is top-down or bottom-up?” I would argue how they go about the business of process (or the process of business).
Well-oiled machines
There are plenty of well-oiled machines that could at a glance look like low-risk acquisitions but in fact are driven by charismatic leadership and/or heavy-handed management. The trains run on time but the conductor has his hands in everything. These models are unsustainable as segments of a corporation because leadership can’t be separated from functioning of the various parts.
On the other hand, a company that has at its roots the ability to manage even lower-level work in standard ways is actually much more modular. Bottom-up process companies are loosely coupled and familiar with change. Process doesn’t bring rigid structure to bottom-up, it actually brings autonomy that can survive acquisitions and continue to bring value.
The mother ship, too
Having been around long enough to be on both sides of acquisitions, this is something that repeats itself time and time again but rarely gets addressed by the companies on acquisition streaks. And the irony is that process management matters for the acquirer as much as the acquired. When the major functions of a large corporation are governed bottom-up, there’s a ready team to absorb the functions of an acquisition and quickly achieve economies of scale.
The best antifragile acquisition is one where both parties have bottom-up process management that can quickly be blended in the best fashion possible and in the shortest timelines.
What makes this interesting, though, is what it means just as much for companies that aren’t acquiring or being acquired. Modular business, durability, agility, strength throughout a leadership change are all available to bottom-up process companies.
I’d love to hear your comments on this concept.
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Great insight but sadly most M&A seems to be fueled by CEO ego. Process at a minimum should be a due diligence consideration, but it never is. Yet again process us undervalued as a business tool.
Ian, Thanks for your comment. Process is definitely a window onto how things will play out.
fine blog Tom. These are always emotional decisions, and yet no one admits it! That is likely why @ 80% of Successful mergers are deemed failures within 5 years (I read that in a recent LinkedIn post) . At Successful Transition Planning Institute, we believe that if more leaders paid attention to the people integration issues before the merger/acquisition, maybe we could get the failure rate down to 60%. Pretty dismal - but a marked improvement.
Tom - it is a surprise to me that not more people look at organizations as if they were organisms, they evolve, mature, suffer injury and repair. They can be moody and sometimes depressed. When two people walk into a room their is either an unspoken positive exchange, negative or neutral. so 66% of the outcomes are nett neutral/negative, only in the event of the positive exchange is their a high probability of a beneficial leverageable outcome. Companies are no different - large or small. There are tools being developed in and around CSU that generate a corporate personality profile, its a very interesting notion that sets aside the CEO egocentric “at any cost” mentality and considers the personality match of the organisations. Its too early to simply say the approach has a track record of success but it certainly has potential for acquirers/sellers and investors. It even suggests that companies with a like personality may benefit one another even when they may serve completely different markets !