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Hi, and welcome to Be The Flagship with our podcast host, Jeff Parsons.

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This is where we tackle the day-to-day talent management challenges you face.

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And now over to our host.

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Take it away, Jeff.

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Hello, and welcome again to Be The Flagship.

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I'm your host, Jeff Parsons.

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This is episode six of a series I'm calling Finance and Operations, where we are exploring

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the impact of finance and achieving organizational excellence and business success.

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We've been focusing on topics such as business strategy and how to incorporate suppliers

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into business strategy.

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And last week, we talked about how to incorporate customers into business strategy and the things

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for our listeners to keep in mind.

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Today, and we ended last week's discussion, by the way, in talking about M&A activity

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and how to incorporate that into your strategic plan.

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Joining us again today is finance expert and my friend, Jeff Smith.

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If you have any questions about anything you hear in these podcasts, feel free to reach

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out to Jeff at jeff.smith at dynamicstrategylc.com.

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That's jeff, G-E-O-F-F dot Smith at dynamicstrategylc.com.

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Now, Jeff, we're picking up where we left off last week on mergers and acquisitions.

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And so we're going to begin the discussion in this episode on the types of acquisition

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targets and how to determine the acquisition targets.

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So I can't wait to get started, Jeff.

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Glad to be back.

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Let's talk about the types of acquisition targets.

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There are different types of targets, so walk us through that.

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Yeah.

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So one of the things that we talked about when we were talking about Porter's Five Forces

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is related products, but not all companies target related companies.

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And so there's different types of acquisition.

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There's a horizontal acquisition, which really means that they're similar businesses or similar

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products.

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They're expanding market share and penetrating into new markets.

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So I believe it's General Motors.

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Their car product in the UK is Vauxhall.

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So it didn't make sense to have this American-made entity that was very much the American way

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of life competing in the United Kingdom.

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So they purchased a company called Vauxhall.

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And so they went to market with cars, still four wheels and an engine, but it's appropriate

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to the market that they're competing in.

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And so that would be a horizontal type of acquisition.

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Insurance companies or insurance agencies might buy another insurance agency in a market

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that they want to penetrate into.

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Right?

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Okay.

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There's vertical integration, right?

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Businesses that are either suppliers or customers of your product offering, and basically you're

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looking to shorten your supply chain.

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So you're creating synergies, reducing supply chain costs, making things more efficient.

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So for example, any cell phone manufacturer might buy a battery manufacturer.

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Right.

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The battery goes into the cell phone.

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You've now shortened your supply chain.

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Right?

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And it helps you to control the availability of key products into your company.

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Right.

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Right?

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Mm-hmm.

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There's co-generative, which is businesses that are in adjacent markets.

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So the value creation is from bundling products and saving customers time with a one-stop

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shop.

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You're an HR guy.

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I'm an accounting guy, but we're both in the operations sort of market.

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So if we wanted to offer a one-stop shop of accounting and strategy and HR and strategy

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and bundle it all together, then it makes the decision for our customer easier to make.

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Okay.

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Got it.

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Right?

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Mm-hmm.

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So a plant wholesaler might acquire one of the producers of its main product.

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Gotcha.

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Okay.

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Okay.

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All right.

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Then there's conglomerates.

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And those are the funny ones that don't make any sense to anybody.

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Right?

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So you've got like Procter & Gamble, which is consumer packaged goods.

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Right?

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Mm-hmm.

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Right.

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What do diapers and potato chips have in common with one another?

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Right.

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Absolutely nothing.

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Absolutely.

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Except P&G.

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Exactly.

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Exactly.

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And so what they do is they diversify risk.

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And for example, when I was working in Forest Products, you had the lumber side of the market

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and then you had the pulp and paper side of the market.

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And often those two markets were opposite to one another.

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When pulp and paper prices were high, lumber prices were low.

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Right.

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When lumber prices were high, pulp and paper prices were low.

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And so they were a good risk mitigation strategy to have both pulp and paper and solid wood.

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That makes sense.

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Okay.

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So those are the various types of acquisitions.

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So Jeff, let's take a quick break.

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And then when we return, let's talk about why those acquisitions oftentimes fail.

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Are you in need of interim HR support?

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Would you like to transition your performance management process to a performance development

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process?

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Are you interested in implementing a robust succession planning process to create an internal

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talent pipeline?

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Need a wage survey or an employee satisfaction survey?

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Let Flagship Talent Solutions help you today.

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To learn more, contact Jeff Parsons by email at jeff at flagshiptalent.com or by phone

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at 1-800-530-4189, extension 101.

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Okay.

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We're back with Jeff Smith.

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So Jeff, let's talk about why some acquisitions fail to generate the value.

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And I've been a part of those before where you made the acquisition, the company, the

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acquiring company was really excited about it.

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And then they just didn't see the value that they were expecting in the acquisition.

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So talk to me about why they fail.

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Yeah.

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Okay.

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So if you go back to our discussion on strategic planning, talk about why strategy fails.

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One of the things we talked about was communication and behavior.

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Is the leadership team aligned with the acquisition?

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And the complicating factor is, is now you've got two leadership teams.

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And are they both aligned with the future state and the acquisition integration strategy?

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Right.

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So one might say, oh yeah, we're going to be doing a complete integration.

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You're owned by us now.

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Right?

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Right.

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And then the leadership team of the acquired company might say, these putzes don't know

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what they're doing.

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Right?

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They have no idea how to run our business.

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We'll see.

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Right?

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Right.

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We don't want that.

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We want to have a complete alignment with the strategy.

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But the other part of it is we talked about earlier when we talked about strategic planning

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is you put all this time and effort into building your strategic plan.

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You get it approved.

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You do the congratulatory deer and then you go back to your regular day job.

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Right?

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Right.

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Same thing goes with acquisition teams.

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You put together a due diligence team that's made up of your operations folks.

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Right?

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They go in, they do the due diligence.

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They do the synergy analysis.

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They decide that it's a business that they really want to acquire.

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They can achieve value from it.

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They get through the deal process.

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We all go out to dinner.

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We get a backpack that's like the acquisition team of 2024.

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Right?

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Then we go back to our regular day jobs.

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We've got a business to run.

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Right?

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Right.

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So what happens to the integration strategy?

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It takes the back seat.

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So there's this lack of executive sponsorship and dedicated resources that I've seen very

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common in acquisitions.

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I'm always surprised that there's not this entire team of integration folks that are

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like, we're good at integrations and this is the way that we're going to go and lay

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out that roadmap.

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I've seen it happen in very good integrations, but I've also seen the opposite where there's

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lack of that.

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I have as well.

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You know?

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So lack of a focus on people.

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You know, you and I just talked about the importance of engaging people in an integration

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because you've got change in processes, change in expectations.

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You've got uncertainty.

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You've got new people that you report to.

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It's just far easier to go get another job.

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Right?

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Right.

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But if you re-engage the people early on in the process and you provide them with a clear

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vision and you provide them with a roadmap to get to that future state that's, you know,

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deer dancing through a mountain meadow and a rainbow and waterfalls and all, you paint

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that picture for them.

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Right.

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You want to stay around and see that.

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Right.

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So, a compelling vision.

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Exactly.

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Yeah.

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Exactly.

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And then a lack of focus on value realization.

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One of the realities is that people sell businesses because they want to get out of the business.

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Right?

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Right.

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They want to retire.

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It's not performing the way they want it to.

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There's some reason that's compelling them to sell the business.

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Right?

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So, when I buy a business that's a shiny new business for me, it's not going to be functioning

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100% correctly.

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And so, focus on value realization is really important.

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It's not about transformation.

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It's about getting the basic blocking and tackling in place.

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Right?

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Right.

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And so, a lot of the times when I look at a business integration, I will focus on working

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capital because I can generate a lot of cash just by focusing on accounts receivable, inventory,

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and accounts payable.

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Okay.

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And so, I can realize a lot of value just by getting the fundamentals in place.

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Right?

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Mm-hmm.

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And so, we start on business transformation, but that's not the first thing.

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And a lot of companies, they make the mistake of saying, we just bought a business, we're

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going to change everything.

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Right?

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Mm-hmm.

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If you start off with business transformation, you're going to fail.

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Right.

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You have to have the building blocks in place before you work on transforming the business.

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You have to make sure you have the right systems in place, processes in place, culture in

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place, all those things.

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Right?

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Yeah.

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Okay.

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So, yeah.

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And so, there's this playbook that you have to have in place, where you start off with

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your integration strategy, and then you have an employee integration strategy.

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And your employee integration strategy should have a communication plan.

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It should paint that picture.

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It should tell the employees how they fit into the new organization.

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People need to know that they belong, that they have a place that is theirs.

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And so, making the new employees feel like they belong in the new organization.

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Mm-hmm.

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Define new roles and clarify the culture.

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Right?

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Right.

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And then you work on synergies and value creation, your process optimization plan, your synergy

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development, your accretion plan, your technology plan, all those sort of things, which are

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more along the lines of basic fundamentals of how you do business.

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Okay.

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Then you look at your operating model.

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Right?

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Are there things that you can do to create synergies within the company?

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Define what the future operating model looks like.

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Mm-hmm.

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Clarify the reporting structure, and then clarify the operating targets.

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Right?

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So, it might have been under the old management style that it was okay to have X amount of

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performance.

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But that's not okay with the new one.

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And so, you have to define that.

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You have to make the implicit explicit.

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Right?

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Right.

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People need to know what their goals are.

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Right.

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And then you manage the integration.

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You treat it like a project.

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You do project management.

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Use project management techniques.

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You define targets and timelines and milestones.

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You celebrate the wins.

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You report on progress.

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And then you reassess and make adjustments as necessary.

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And that's kind of the overall, the large arching playbook that should be involved in

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every acquisition.

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Every acquisition is different, but they all have common themes behind them.

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All right.

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So, I have a...

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That was a great way to end the discussion.

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That's a great playbook, really.

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And when you mentioned clarifying operating targets, it reminds me of a humorous situation

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we had after an acquisition several years ago.

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We actually had a couple of R&D people leave the company and they started their own business,

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competitive business.

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And so, my company engaged upon this long legal battle with these two R&D people who

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had left to start a new competitive business.

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And that took a long time to get to the conclusion of that.

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And so, what happened, our company won a lawsuit against the new company and the new company

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didn't pay.

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So, we basically inherited their business as an acquisition in exchange for, you know,

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lawsuit settlement, right?

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And we didn't realize until we stepped into the business that they weren't competing at

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all.

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All they were doing was manufacturing scrap.

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They weren't making good product, right?

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And so, they were going down this sinkhole.

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They weren't making any money and producing all this scrap.

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I'll never forget sitting in the conference room.

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We had made plans to close the new acquisition.

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We're just going to close it, shutter it up, right?

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So, we explained to them, you know, that we were going to close the business and that

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was the plan.

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And all of a sudden, their performance got better.

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Their performance started increasing after we told them we're going to close the business.

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I'll never forget sitting in the conference room and the president of that business was

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in there and said, wow, you know, your performance has really increased and, you know, I'm just

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puzzled, you know, what was the difference?

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And the controller of the new acquisition on the phone said, well, we didn't realize

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we were supposed to be profitable until you told us.

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And I thought as an HR person, I was going to have to put my CPR into practice in that

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conference room.

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People were falling out of the chair almost.

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They were like, what?

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They didn't realize they were supposed to be making a profit.

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But it was too little, too late.

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And so, we eventually closed that business.

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But clarifying those targets is really important, you know, making sure they understand what

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the expectation because sometimes they'll make an assumption as business as usual if

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you don't tell them any differently and then hold them to account for it.

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Right.

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So, that's been a great discussion, Jeff.

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I really appreciate your time and your contribution.

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As always, you're appreciated.

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Let's take one more break and then we'll be back to wrap up.

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At Flagship Talent, we work with our clients to find and place the right talent.

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What do we mean by the right talent?

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We mean we find talent who will commit to your organizational goals and align with your

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values and behavior expectations.

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Talent who will perform to your expectations.

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Talent who will stay and grow with your organization.

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How are we different from our competitors?

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We offer the lowest fee structure in the industry.

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We offer the best talent guarantee in the industry.

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We provide selection and interviewing support to our clients at no additional fee.

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We want to save you money, deliver high quality talent, become an extension of your organization,

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and be your preferred provider of talent acquisition solutions.

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To learn more, contact Jeff Parsons by email at jeff at flagshiptalent.com or by phone

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at 1-800-530-4189, extension 101.

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We're back with Jeff Smith.

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So Jeff, so if they'd like to get in touch with you, the listeners, what's the best way

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of doing so?

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Well, my company is Dynamic Business Strategy.

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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

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spell it the English way.

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Or you can contact me at jeff.smith at dynamicstrategylc.com.

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My phone number is 805-813-0600.

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805, what was the rest of it?

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813.

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813.

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0600.

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0600.

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Again, thanks so much, Jeff, for your time and I look forward to working with you again

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down the road, okay?

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And as a matter of fact, Jeff has agreed to bless us with another episode where he's going

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to take some of the key financial metrics and break them down in terms of what they

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are.

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He's going to define them and how they're used so that if you're an operations professional

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and you hear these terms but don't quite understand what they are or how they're used, you don't

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want to miss next week's episode.

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So Jeff, thanks again.

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Excellent.

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Looking forward to it, Jeff.

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Thank you for listening to this episode of Be the Flagship with Jeff Parsons.

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We hope you enjoyed it.

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If you did like it, please subscribe and share with others.

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Until next time, take the step to become the flagship in your marketplace.