In the IT industry, there are two primary ways for a service provider to grow: organic expansion and acquisitions.
The former necessitates an investment in people and money to increase technical understanding, expand geographically, or both. These investments, plus many more, are required for the latter. If you decide to pursue the acquisition route, make sure you know what you’re doing. To develop the best plan, you must first properly examine your company’s strengths and goals. It is all too simple to make a costly error that will take years to recover from, if at all.
Miscalculation of the Business Impact
Before you buy a company, ensure that you comprehend the financial and non-financial implications. Is the target firm compatible with your long-term strategy? Is the culture a good fit, and will both firms’ operational procedures mesh well? You must anticipate the reactions of customers, partners, and staff. Will there be any opposition? You must be aware of any potential acquisition consequences. Guesswork and wishful thinking will not get you very far.
In mergers and acquisitions, common wisdom holds that 1 and 1 must equal 3, implying that the value created by the merger should be more than the sum of the two companies had they stayed independent. In actuality, a union of 1 and 1 should equal 11. You should be able to count on a big return if you put in the time, effort, and risk of negotiating the agreement and completing the integration. That may seem absurd, but consider this: what is the point of making an acquisition if you don’t expect significant dividends?
The egos engaged at all levels of the corporation have a lot to do with whether an acquisition succeeds or fails. A sales vice president, chief engineer, or COO who is resistant to change or power-sharing might poison others on the team. Keep an eye out for employees that want to be king when you really need council members. Egocentric individuals eventually depart or cause others to leave, but not without wreaking harm first. So get to know the people and screen out those who might work against the acquisition after it is completed.
The goal is to be really honest about who shares your vision and wants to be a part of the future – and who does not. In the latter instance, all alternatives, including the “golden handshake” and other types of separation, are on the table. The wise course of action is to deal with these difficulties head-on and move on.
Not Knowing What Will Happen Next
A common mistake made by both buyers and sellers is getting so caught up in the transaction that they forget about what follows afterward. The merger and acquisition process can be thrilling, especially for risk-taking entrepreneurs, but keep in mind that signing on the signed line is only the beginning. The difficult process of executing the integration, integrating business cultures, and absorbing new consumers comes next. Many acquisitions have failed because the acquirer was too focused on the purchase and did not plan for what came next.