Hi, and welcome to Be The Flagship with our podcast host, Jeff Parsons.
This is where we tackle the day-to-day talent management challenges you face.
And now over to our host.
Take it away, Jeff.
Hello, and welcome again to Be The Flagship.
I'm your host, Jeff Parsons.
This is episode six of a series I'm calling Finance and Operations, where we are exploring
the impact of finance and achieving organizational excellence and business success.
We've been focusing on topics such as business strategy and how to incorporate suppliers
into business strategy.
And last week, we talked about how to incorporate customers into business strategy and the things
for our listeners to keep in mind.
Today, and we ended last week's discussion, by the way, in talking about M&A activity
and how to incorporate that into your strategic plan.
Joining us again today is finance expert and my friend, Jeff Smith.
If you have any questions about anything you hear in these podcasts, feel free to reach
out to Jeff at jeff.smith at dynamicstrategylc.com.
That's jeff, G-E-O-F-F dot Smith at dynamicstrategylc.com.
Now, Jeff, we're picking up where we left off last week on mergers and acquisitions.
And so we're going to begin the discussion in this episode on the types of acquisition
targets and how to determine the acquisition targets.
So I can't wait to get started, Jeff.
Glad to be back.
Let's talk about the types of acquisition targets.
There are different types of targets, so walk us through that.
Yeah.
So one of the things that we talked about when we were talking about Porter's Five Forces
is related products, but not all companies target related companies.
And so there's different types of acquisition.
There's a horizontal acquisition, which really means that they're similar businesses or similar
products.
They're expanding market share and penetrating into new markets.
So I believe it's General Motors.
Their car product in the UK is Vauxhall.
So it didn't make sense to have this American-made entity that was very much the American way
of life competing in the United Kingdom.
So they purchased a company called Vauxhall.
And so they went to market with cars, still four wheels and an engine, but it's appropriate
to the market that they're competing in.
And so that would be a horizontal type of acquisition.
Insurance companies or insurance agencies might buy another insurance agency in a market
that they want to penetrate into.
Right?
Okay.
There's vertical integration, right?
Businesses that are either suppliers or customers of your product offering, and basically you're
looking to shorten your supply chain.
So you're creating synergies, reducing supply chain costs, making things more efficient.
So for example, any cell phone manufacturer might buy a battery manufacturer.
Right.
The battery goes into the cell phone.
You've now shortened your supply chain.
Right?
And it helps you to control the availability of key products into your company.
Right.
Right?
Mm-hmm.
There's co-generative, which is businesses that are in adjacent markets.
So the value creation is from bundling products and saving customers time with a one-stop
shop.
You're an HR guy.
I'm an accounting guy, but we're both in the operations sort of market.
So if we wanted to offer a one-stop shop of accounting and strategy and HR and strategy
and bundle it all together, then it makes the decision for our customer easier to make.
Okay.
Got it.
Right?
Mm-hmm.
So a plant wholesaler might acquire one of the producers of its main product.
Gotcha.
Okay.
All right.
Then there's conglomerates.
And those are the funny ones that don't make any sense to anybody.
Right?
So you've got like Procter & Gamble, which is consumer packaged goods.
Right?
Mm-hmm.
Right.
What do diapers and potato chips have in common with one another?
Right.
Absolutely nothing.
Absolutely.
Except P&G.
Exactly.
And so what they do is they diversify risk.
And for example, when I was working in Forest Products, you had the lumber side of the market
and then you had the pulp and paper side of the market.
And often those two markets were opposite to one another.
When pulp and paper prices were high, lumber prices were low.
Right.
When lumber prices were high, pulp and paper prices were low.
And so they were a good risk mitigation strategy to have both pulp and paper and solid wood.
That makes sense.
Okay.
So those are the various types of acquisitions.
So Jeff, let's take a quick break.
And then when we return, let's talk about why those acquisitions oftentimes fail.
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Okay.
We're back with Jeff Smith.
So Jeff, let's talk about why some acquisitions fail to generate the value.
And I've been a part of those before where you made the acquisition, the company, the
acquiring company was really excited about it.
And then they just didn't see the value that they were expecting in the acquisition.
So talk to me about why they fail.
Yeah.
Okay.
So if you go back to our discussion on strategic planning, talk about why strategy fails.
One of the things we talked about was communication and behavior.
Is the leadership team aligned with the acquisition?
And the complicating factor is, is now you've got two leadership teams.
And are they both aligned with the future state and the acquisition integration strategy?
Right.
So one might say, oh yeah, we're going to be doing a complete integration.
You're owned by us now.
Right?
Right.
And then the leadership team of the acquired company might say, these putzes don't know
what they're doing.
Right?
They have no idea how to run our business.
We'll see.
Right?
Right.
We don't want that.
We want to have a complete alignment with the strategy.
But the other part of it is we talked about earlier when we talked about strategic planning
is you put all this time and effort into building your strategic plan.
You get it approved.
You do the congratulatory deer and then you go back to your regular day job.
Right?
Right.
Same thing goes with acquisition teams.
You put together a due diligence team that's made up of your operations folks.
Right?
They go in, they do the due diligence.
They do the synergy analysis.
They decide that it's a business that they really want to acquire.
They can achieve value from it.
They get through the deal process.
We all go out to dinner.
We get a backpack that's like the acquisition team of 2024.
Right?
Then we go back to our regular day jobs.
We've got a business to run.
Right?
Right.
So what happens to the integration strategy?
It takes the back seat.
So there's this lack of executive sponsorship and dedicated resources that I've seen very
common in acquisitions.
I'm always surprised that there's not this entire team of integration folks that are
like, we're good at integrations and this is the way that we're going to go and lay
out that roadmap.
I've seen it happen in very good integrations, but I've also seen the opposite where there's
lack of that.
I have as well.
You know?
So lack of a focus on people.
You know, you and I just talked about the importance of engaging people in an integration
because you've got change in processes, change in expectations.
You've got uncertainty.
You've got new people that you report to.
It's just far easier to go get another job.
Right?
Right.
But if you re-engage the people early on in the process and you provide them with a clear
vision and you provide them with a roadmap to get to that future state that's, you know,
deer dancing through a mountain meadow and a rainbow and waterfalls and all, you paint
that picture for them.
Right.
You want to stay around and see that.
Right.
So, a compelling vision.
Exactly.
Yeah.
Exactly.
And then a lack of focus on value realization.
One of the realities is that people sell businesses because they want to get out of the business.
Right?
Right.
They want to retire.
It's not performing the way they want it to.
There's some reason that's compelling them to sell the business.
Right?
So, when I buy a business that's a shiny new business for me, it's not going to be functioning
100% correctly.
And so, focus on value realization is really important.
It's not about transformation.
It's about getting the basic blocking and tackling in place.
Right?
Right.
And so, a lot of the times when I look at a business integration, I will focus on working
capital because I can generate a lot of cash just by focusing on accounts receivable, inventory,
and accounts payable.
Okay.
And so, I can realize a lot of value just by getting the fundamentals in place.
Right?
Mm-hmm.
And so, we start on business transformation, but that's not the first thing.
And a lot of companies, they make the mistake of saying, we just bought a business, we're
going to change everything.
Right?
Mm-hmm.
If you start off with business transformation, you're going to fail.
Right.
You have to have the building blocks in place before you work on transforming the business.
You have to make sure you have the right systems in place, processes in place, culture in
place, all those things.
Right?
Yeah.
Okay.
So, yeah.
And so, there's this playbook that you have to have in place, where you start off with
your integration strategy, and then you have an employee integration strategy.
And your employee integration strategy should have a communication plan.
It should paint that picture.
It should tell the employees how they fit into the new organization.
People need to know that they belong, that they have a place that is theirs.
And so, making the new employees feel like they belong in the new organization.
Mm-hmm.
Define new roles and clarify the culture.
Right?
Right.
And then you work on synergies and value creation, your process optimization plan, your synergy
development, your accretion plan, your technology plan, all those sort of things, which are
more along the lines of basic fundamentals of how you do business.
Okay.
Then you look at your operating model.
Right?
Are there things that you can do to create synergies within the company?
Define what the future operating model looks like.
Mm-hmm.
Clarify the reporting structure, and then clarify the operating targets.
Right?
So, it might have been under the old management style that it was okay to have X amount of
performance.
But that's not okay with the new one.
And so, you have to define that.
You have to make the implicit explicit.
Right?
Right.
People need to know what their goals are.
Right.
And then you manage the integration.
You treat it like a project.
You do project management.
Use project management techniques.
You define targets and timelines and milestones.
You celebrate the wins.
You report on progress.
And then you reassess and make adjustments as necessary.
And that's kind of the overall, the large arching playbook that should be involved in
every acquisition.
Every acquisition is different, but they all have common themes behind them.
All right.
So, I have a...
That was a great way to end the discussion.
That's a great playbook, really.
And when you mentioned clarifying operating targets, it reminds me of a humorous situation
we had after an acquisition several years ago.
We actually had a couple of R&D people leave the company and they started their own business,
competitive business.
And so, my company engaged upon this long legal battle with these two R&D people who
had left to start a new competitive business.
And that took a long time to get to the conclusion of that.
And so, what happened, our company won a lawsuit against the new company and the new company
didn't pay.
So, we basically inherited their business as an acquisition in exchange for, you know,
lawsuit settlement, right?
And we didn't realize until we stepped into the business that they weren't competing at
all.
All they were doing was manufacturing scrap.
They weren't making good product, right?
And so, they were going down this sinkhole.
They weren't making any money and producing all this scrap.
I'll never forget sitting in the conference room.
We had made plans to close the new acquisition.
We're just going to close it, shutter it up, right?
So, we explained to them, you know, that we were going to close the business and that
was the plan.
And all of a sudden, their performance got better.
Their performance started increasing after we told them we're going to close the business.
I'll never forget sitting in the conference room and the president of that business was
in there and said, wow, you know, your performance has really increased and, you know, I'm just
puzzled, you know, what was the difference?
And the controller of the new acquisition on the phone said, well, we didn't realize
we were supposed to be profitable until you told us.
And I thought as an HR person, I was going to have to put my CPR into practice in that
conference room.
People were falling out of the chair almost.
They were like, what?
They didn't realize they were supposed to be making a profit.
But it was too little, too late.
And so, we eventually closed that business.
But clarifying those targets is really important, you know, making sure they understand what
the expectation because sometimes they'll make an assumption as business as usual if
you don't tell them any differently and then hold them to account for it.
Right.
So, that's been a great discussion, Jeff.
I really appreciate your time and your contribution.
As always, you're appreciated.
Let's take one more break and then we'll be back to wrap up.
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What do we mean by the right talent?
We mean we find talent who will commit to your organizational goals and align with your
values and behavior expectations.
Talent who will perform to your expectations.
Talent who will stay and grow with your organization.
How are we different from our competitors?
We offer the lowest fee structure in the industry.
We offer the best talent guarantee in the industry.
We provide selection and interviewing support to our clients at no additional fee.
We want to save you money, deliver high quality talent, become an extension of your organization,
and be your preferred provider of talent acquisition solutions.
To learn more, contact Jeff Parsons by email at jeff at flagshiptalent.com or by phone
at 1-800-530-4189, extension 101.
We're back with Jeff Smith.
So Jeff, so if they'd like to get in touch with you, the listeners, what's the best way
of doing so?
Well, my company is Dynamic Business Strategy.
I'm active on LinkedIn and you can find me as Jeff Smith, G-E-O-F-F, S-M-I-T-H, so I
spell it the English way.
Or you can contact me at jeff.smith at dynamicstrategylc.com.
My phone number is 805-813-0600.
805, what was the rest of it?
813.
0600.
Again, thanks so much, Jeff, for your time and I look forward to working with you again
down the road, okay?
And as a matter of fact, Jeff has agreed to bless us with another episode where he's going
to take some of the key financial metrics and break them down in terms of what they
are.
He's going to define them and how they're used so that if you're an operations professional
and you hear these terms but don't quite understand what they are or how they're used, you don't
want to miss next week's episode.
So Jeff, thanks again.
Excellent.
Looking forward to it, Jeff.
Thank you for listening to this episode of Be the Flagship with Jeff Parsons.
We hope you enjoyed it.
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Until next time, take the step to become the flagship in your marketplace.