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Growth & Acquisitions

A Three-Part Series by Will Stabler

About This Series

I wrote this article series in three parts over two months during early 2019 during a time of growth and acquisitions in the healthcare industry before the pandemic hit.

Articles in This Series

1. Growth: It’s All One Bucket
No matter how you slice it, acquisitions are about growth and therefore about sales. New products, new geography, more market power, new customers; it’s all about sales. So the decision to do a deal should be weighed explicitly against organic growth alternatives.
 
While the role and end objectives of acquisitions and sales are essentially the same, the execution processes are quite different. This article explores the nuances.
 
All successful acquisitions are founded on one of two traits: a smart strategy or dumb luck. Making an acquisition that has an explicit role in your strategic plan will enable you to find a better target, ask better questions about it, make decisions more quickly and more logically and, hence, to increase your likelihood of deal success. 

Growth: It's All One Bucket

By Will Stabler

First published on Feb. 21, 2019

Organizational structure is usually designed to support organizational strategy. But the converse is also true: organizational structure can shape strategy. That is, the infrastructure that has been built to support one approach will often shape the outcome of a new approach unless the new one comes with a concerted rethinking of the structure. That can be a formula rife with unintended – and unwanted – consequences.

The circumstance under which this chicken-egg problem surfaces most is when companies embark on the acquisition trail. We’re not talking about a deal every couple of years here; we’re talking about a new approach to growth that seeks to use acquisitions to complement normal organic growth, a recurring program of deals.

Putting Organic and inorganic growth in in a single bucket

Historically, organic and inorganic growth have been kept in separate buckets. From a deal perspective, there is some logic to that approach: deals are episodic; sales are constant. But from an ongoing operational perspective – after the deal closes – this bifurcation makes no sense.

Having organic and inorganic growth run by two different units is akin to having one unit for purchasing equipment and a completely separate one for leasing equipment. You wouldn’t do that. Buying and leasing are merely two different paths to a single end. The same is true in creating growth: organic and inorganic are merely two different means to the same end. If you house them in separate fiefdoms all kinds of “fief dumb” things can happen.

No matter how you slice it, acquisitions are about growth and therefore about sales. New products, new geography, more market power, new customers; it’s all about sales. So the decision to do a deal should be weighed explicitly against organic growth alternatives. 

Many companies create very tight little units to do acquisitions. The logic behind this – confidentiality – is sound. But limiting. And risky.

Accepting the maxim that the more people on a deal team the greater the likelihood of information leaking out, it is nonetheless imperative that the team include people capable of analyzing the organic alternatives and others who will be charged with running the acquired business once the deal is done. The former group places the build-or-buy analysis in its actual real-life context and the latter makes for more certain projections and integration readiness. In addition, if the decision-making process truly embraces “build” as an analytical alternative to doing a deal then the tendency to pump up projections unrealistically to justify doing a deal are reduced.

After all, the point of doing a deal is not to do a deal. The point is to grow the business. And the sad truth is that the majority of all deals don’t work out. That makes the “build” alternative pretty attractive. And that means treating the build-or-buy process as a single decision… which brings us back to the structure-versus-strategy (or form-versus-function) question.

As you embark on a program of acquisitions, what is the best structure to ensure true indifference in the build-or-buy analysis? Where should the responsibility for it be housed? And who should be put in charge of it all?

Next time.