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One of the frustrating truths about mergers and acquisitions is that you can put in a lot of work on a potential deal and end up with nothing to show for it.

“The nature of this work is that most of the stuff you work on doesn’t happen,” says Eric R. Schnur, chairman, president and CEO of Lubrizol Corp. “The thing we’ve learned is that flexibility is good, lack of clarity is not. Rather than take a ‘we’ll figure it out as we go’ approach, we’ve worked to define that plan much more clearly.”

Lubrizol completed one of its most important acquisitions in 2004 when it bought Noveon International Inc. It was a bolt-on acquisition that gave the company a stronger presence in personal care and performance coatings products. And it signaled to Lubrizol’s core business that the company was aggressively pursuing a more diverse offering to customers.

Schnur spoke about his approach to M&A and how his range of experiences at Lubrizol has made him a better dealmaker.

How do acquisitions factor into your business strategy?

We are always looking for acquisitions. Right now, we’re working on some and we’re thinking about others. It really comes down to knowing what the strategy is for the business and knowing where you’re trying to take it. What gaps do you have in terms of capability, talent and resources? What is the best way to fill those gaps?

Bolt-on acquisitions are what we do the most. An example is our life science business. In 2010, we wouldn’t have mentioned life science because we didn’t have a life science business. We had a very small business in pharmaceuticals and a very small business in films for medical applications like patches and medical tubing and things like that.

There was recognition of an opportunity, particularly when you look at the convergence of pharmaceuticals and medical devices to where you see drugs delivered to the device itself. We had two technologies and some ideas that maybe we could do something. We’ve made five different bolt-on acquisitions in that area. One to give us some manufacturing capability, one to give us some formulating capability and a couple to just give us a broader technology portfolio.

It was all done with the recognition we could build around life sciences and high-end skincare products. This was something we knew. Even if you’re not an expert, if you know something about it and you’ve thought through what the technology or skill set gaps are to try to fill, the risk is much lower. It doesn’t guarantee everything is going to be successful. When you look at bolt-on acquisitions, even large ones, we can take the risk out by bolting it on to something we know. That doesn’t mean we won’t entertain something that is outside of what we do today. But that’s not where we’re spending most of our time and energy in the acquisition area.

What do you look at when considering an acquisition?

Larger companies have a standard template for how they do acquisitions. We have things that have to be done, but we’re pretty flexible on how we do integrations. We bought a company called Particle Sciences in Bethlehem, Pennsylvania, that takes active pharmaceutical ingredients and they incorporate those into polymer structures so you can control the release rate of the pharmaceutical ingredient based on how you incorporate it and what the polymer is. We don’t know anything about that.

We’ve got pharmaceutical polymers and we have medical device manufacturing through another acquisition. This was a great fit to that combination, but we didn’t know how to do that. Now if we would have showed up and said, ‘Guess what, we’re going to integrate you,’ we could have destroyed the value, which is why we bought it. We try to be flexible based on the situation.

What we’ve learned and are trying to get better at is to declare what we’re going to do over, say, the next two or three years upfront. We might say to a company, ‘We want you to continue to do what you’ve been doing. But we need you to declare what you are going to do with the computer systems. What are you going to do with benefits? What are you going to do with all these things that are decisions?’ You relieve that frustration. If you don’t discuss those things upfront, the owner might be happy you’re leaving them alone. But he or she might not be happy that you haven’t put them on the benefits or on something else where your company can support them.

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