January 8, 2015 - An article by Douglas Nix, CA,CPA
Here’s an industry standard that we’ve seen throughout the years. This is what companies who specialize in integration actually tell people:
Common approach to integration: integration based on size.
These so-called “specialists” say that integration is really straight forward and you should so it based on size. For example, if the acquired company is up to 10% of your size, you should simply completely integrate it to your business, and as it gets bigger you will change your approach to the integration.
This is where the flawed thinking lies. There are two great failures in acquisitions, which are: a bad strategy, and the inability to integrate properly, where the value of the acquisition is diminished through the integration.
Best approach to integration: integration based on the model
If you buy a company based on its valuable processes, for example, these processes seldom survive full integration into the other company because it’s put into conflict. Let’s say there’s a company that won’t sell anything for less than a 40% margin and they buy a business that has customer service as a strong point. If you try putting these two together, they will clash. That’s why the acquisitions based on the valuable processes shouldn’t integrate, no matter the size of the company. If you are doing this type of acquisition, move key people over and feed it with good resources, but don’t try to impose your business model on the acquired company because it will destroy its valuable processes, which are the reason that the acquisition was made in the first place.