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Post-completion reviews of acquisitions improve success of future opportunities

Article originally published in the American City Business Journals on July 5, 2021.

A best practice at many companies is to present the board with post-completion reviews of acquisitions. These usually take place one or two years after completion of the project, so any lessons learned can be applied to future acquisitions to increase the probability of achieving expectations.

My company followed this post-completion review practice with its board. After I was named CEO, as a refresher, the board asked that we revisit the reviews of acquisitions in recent years and identify how we could improve the acquisition process, which we found to be very useful. Over the subsequent five years, we made seven acquisitions, all of which added significantly to the revenues and earnings growth of the company. 

These were the major learnings from our post-completion reviews:

Ensure acquisitions support the company’s strategic plan

Of course, don’t make an acquisition if it doesn’t support the company’s long term strategy. Periodically review the company’s strategic plan to ensure it continues to make sense due to changes in the competitive and market environment. 

Understand the marketplace

Fully understand market conditions before making the investment. If you’re bidding to acquire a company that is not in your core business, you could be bidding against other companies who are in the core business of the acquisition candidate. If you outbid them, you always wonder why you were willing to pay more than those companies.

Upside potentials need to be balanced against downside risks

The three most prevalent reasons for results falling short of expectations are cost overruns, failure to completely understand the market and revenues that fall short of expectations. Original estimates are often too optimistic, and upside potentials are not balanced against downside risks.

A common practice is to present a sensitivity analysis in your board proposal on major parameters so that the board can see the impact of exceeding or falling short of expectations in these areas. 

You can never do enough due diligence

One of the worst things that can happen after making an acquisition is to uncover an adverse issue that if known before closing, you would have reduced what you paid or not moved ahead with the acquisition. You can never do enough due diligence, especially if the acquisition candidate is not in your core business. 

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Recognize the need for ongoing capital investment

Some businesses are more capital intensive than others. Ongoing investments to upgrade information technology systems and/or process technology will be needed for a business to maintain or improve its competitive position in the marketplace. Be sure to include these ongoing investments when evaluating an acquisition opportunity. 

Address cultural differences between the acquired company and the acquiror

Respect the organizational culture of an acquired company. In part, it’s what makes them successful. If cultural differences are not acknowledged and addressed, talented leaders responsible for the acquired company’s success may leave, destroying value. Both the acquirer and the acquired company can learn from each other, and over time, adopt the best cultural practices.

The CEO should not be an early champion so as not to bias the evaluation

The CEO should let their staff evaluate the acquisition candidate without becoming a champion, so as not to favorably bias the process. The role of the CEO is to ask questions about the probability of achieving financial projections, the need for ongoing capital investment, probe for fatal flaws and determine the action plans to ensure success.

Performing post completion reviews of past acquisitions is a powerful tool to improve the outcomes of future acquisitions. They should be part of the board process.

Stan Silverman is founder and CEO of Silverman Leadership and author of “Be Different! The Key to Business and Career Success.” He is also a speaker, advisor and widely read nationally syndicated columnist on leadership, entrepreneurship and corporate governance. He can be reached at Stan@SilvermanLeadership.com.

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