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The Game is Growth – don’t confuse experience with expertise

by on January 8, 2014

i_love_the_fast_laneGetting bigger matters for business.  Getting bigger is to get better.

Some do it slowly, incrementally, organically.  Others aim for exponential growth, doing it through mergers and acquisitions in order to grow by leaps and bounds. The focus is on combining operations to get maximum market share, economies of scale, and greater brand awareness.  I wrote about this in Size Matters.

The M&A market is hot right now. The economy is good, interest rates are low, and cash is available.

Sure, shrinking and trimming will continue.  We still need to squeeze out costs and boost performance.  But everybody’s doing that and they’ve figured out that cutbacks, by themselves, won’t keep you competitive for long.  Not in today’s market.

Deals Today are about Soft Assets

Today’s deals aren’t about combining companies to cut costs, they’re about strengthening the core competencies: customers, distribution channels, content.  The focus isn’t on things like assets, machines, and facilities.  It’s on thoughts, methodologies, people and relationships – soft assets.

Soft assets like these are very perishable, and that’s the scary part.  Unlike fixed assets you can’t lock them up at night.  Nor can you sell it to someone else if it gets away from you. You’ve got to nurture these soft assets.  You must seduce them into the new combined enterprise with great care.  Then protect them.

Merging Has Become More Complicated

Merging two stand-alone departments is complicated enough.  How does one go about merging two highly integrated value chains, each deeply intertwined with suppliers, contractors and customers?

Many executives and managers have been involved in merging functional organizations, but how many have consolidated departments that have been reengineered so that functional groups have been disbanded, outsourced, or moved to the cloud?

Very few people have the know-how needed to put the new world together. On top of all this, today’s mergers are being undertaken in markets where customers have more purchase options than ever.  This means there are more pressure points than ever before.

Today’s New Rules

Mergers have always pushed people’s change management skills to the limit.  Now they’re pushing even harder. To pull this off successfully – to win in today’s market – you need to follow some new rules.

The fact that you’ve played the game in years past should not make you rest easily with today’s merger challenges.  It’s a different game these days, and you can’t afford to confuse experience with expertise.

p.s.

If you’re wondering how you build a company that you can sell for a premium in a few years, contact me to discuss the Valuation Amplification Process.

I also invite you to download the white paper and learn the 5 step process on How to Quickly Increase Your Valuation: a Proven 5 Step Process.  http://www.therevenuegroup.net/free-offer.html

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From → M&A, Strategy, Valuation

4 Comments
  1. OUTSTANDING ARTICLE MIKE

  2. Steve Salera permalink

    Mike, To me the biggest risk is the people in the firm. Especially in a high tech firm; all your assets go home every night. Makes the valuation of a company all that more difficult.

    Steve Salera

    • Steve,

      I agree. Those are the soft assets that are driving valuations today. They’re extremely difficult to value in advance and even harder, and more important, to value after the deal closes.

      Mike

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