Companies preparing themselves for their first acquisition might appreciate Don Caldwell’s advice: “The plan comes first.”
The chairman and CEO of Cross Atlantic Capital Partners has been involved in a lot of buying and selling. He is a venture capitalist of 25 years. He’s served on numerous boards, been lead director on three public companies, and a principal in 15 IPOs.
“Without the plan, you can look at the whole world, and I don’t think that’s the most productive way to go about it — and it’s not most likely to be successful,” he says. “The closer the acquisition is aligned with your existing businesses, your existing approach to your industry, the better chance you have to being successful.”
Caldwell offered this advice and more when he spoke this summer at the 2019 ASPIRE Dealmakers Conference about how a company can position itself to be ready for an acquisition.
Have a plan
“It all starts with the strategic plan of the company,” Caldwell says. “Because if an acquisition isn’t part of the strategic plan, then you have to think really long and hard about why you would be doing it.”
He says once a company decides that an acquisition makes strategic sense, it has to then address the issues that go with structuring any plan, such as:
- Do you have the capital resources to do it? If not, how will you generate them?
- What kind of advice are you going to get to help you identify the appropriate candidates?
- What kind of internal resources do you need to approach the acquisition game?
- What kind of resources do you need to integrate after you acquire?
Culture fit is the next major issue to address. Caldwell says it’s nearly impossible to get such a good deal in terms of price that it’s worth the risk of trying to merge two radically different cultures.
“The integration of any business of any size is really a huge challenge,” he says. “It’s easy to underestimate how difficult bringing together two cultures is. If you don’t understand your own culture, then it’s very difficult to figure out how you’re going to understand the acquiree’s culture in the merger.”
Culture, he says, leads to results. And that makes it critically important that the acquiring company’s board understands that issue, and if not, work needs to be done to educate them.
“I think boards have real responsibilities and must take them seriously, and that includes oversight and evaluation of not only the plan but the actual acquisitions,” Caldwell says. “You have to honestly start with the capacity of your board. And either you have to help your board get up to speed, or you have to add expertise to the board that will facilitate that process.”
The board needs to feel satisfied that management’s plan to integrate the companies and integrate the cultures will have a good chance of succeeding. To that end, one company he was involved with used three different outside firms to consult along the way: one purely on integration and two others on strategic fit.
“The acquisition was so big and so important for our company we felt we just had to assure ourselves,” he says. “And management was totally supportive of that strategy.
“The best management is the management that is most likely to listen to outsiders, to seek advice, to seek counsel. If management does approach it that way as opposed to trying to convince you that they know everything, then that’s a great start in the process in terms of building confidence.”
Caldwell says that when management insists on going it alone and not seeking outside advice to ensure there’s a cultural fit, not only should that give the board great discomfort, but it’s a great indication that the acquisition might not be successful.
“I’ve been there when the CEO doesn’t want to listen,” Caldwell says, “and I think that’s when you seriously consider either changing your CEO, or resigning from the board.”