Insight

Why corporate companies can kill growth acquisition companies

By David Lawrence |

Just because something worked for someone else doesn’t necessarily mean it will work for you. This concept is true on an individual basis and at a corporate level. In this age of technology, corporate companies find it attractive to acquire start-ups that tend to change the world. For a corporate company to spend millions or even billions on acquiring another company, it is logical to assume that it must have done its homework. However, statistics show that more than 70 per cent of acquisitions fail. It has become a trend for corporate companies to kill growth through acquisitions.

 

Below are some of the reasons why many acquisitions yield the opposite of what they were expected to accomplish.

 

1. Miscalculations

 

More often than not, the price is not right, and corporations find themselves having spent a considerable sum of money on an acquisition that isn’t so promising at close-up.

 

2. Forcing things

 

Some major companies try to force things to happen just because a start-up seems promising or threatening.

 

3. Conflicting interests

 

The business model of the two companies may not agree, causing internal conflicts that drag the business of the major company. Moreover, process mismatch can become an issue as the two companies struggle to maintain their individuality, yet they are one.

 

4. Trust

 

It takes time to build and maintain trust. It can be difficult for mergers and acquisitions to establish trust because the two companies are in it mostly for the money while neglecting the relationship between them.

 

It may seem like acquisitions are no longer a viable option for those capable and willing to engage. However, where there is a will, there is a way. The best approach, therefore, is for corporate acquirers to do the following.

 

1. Be more careful about their acquisitions

 

They can avoid wasting money by evaluating their position from all angles possible and considering the true value of the acquisition.

 

2. Learn from other acquirers

 

This will help the major company to know how to make the business model work and thrive.

 

3. Know and appreciate the acquired company

 

Respect the culture, business model, and individuality of the acquired company and understand that if some changes are necessary, time and care are valuable tools.

 

Growth through acquisition can be a game-changer. Consider technology companies like Facebook and WhatsApp (a successful acquisition); and Cisco and Pure Digital (a failed acquisition). Like any major investment, the only way for an acquisition to work is by thoroughly determining its true worth.


David Lawrence

Written by David Lawrence

David is the founder of Vine Resources.