Thursday, March 10, 2011

When a Healthy Smaller Company acquires a Troubled Larger Company

When a Healthy Smaller Company acquires a Troubled Larger Company, it is described in my business as "landing a mechanically-troubled F-18 fighter jet on stamp-sized ocean-carrier in darkness".

Here is the board of the smaller company, unchallenged, rubber-stamping profits year-after-year, stable management team, nice customers, committed suppliers, who decides that the opportunity of acquiring the troubled regional leader is a once-in-a-lifetime opportunity. It sure is! it is also, in my view, the once-in-a-lifetime opportunity to throw the baby with the bathwater, if not done properly.

In this type of situation, it is best to create an acquisition holdco, which will acquire the troubled business and run it as a standalone business for a while. Maybe tweak the management team, create synergies across operations, customer portfolios and suppliers, but certainly NOT merge the two businesses until a three-year "co-management" process has been completed.

The better the "Co-Management" process is run, the smoother the merger will go, and the better results will come out from the 18-month post-merger integration process.

All-in-All, it is a 4-yr process. Doing it in a shorter period will certainly jeopardize the whole, and certainly not create a result, greater than the sum of the parts.

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