By Gary Mitchell, below, CEO, Techpoint
While major mergers dominate headlines, acquisitions are one of the fastest routes to drive organisational growth. Complementary businesses mean accessing a new customer footprint, increased sales, new opportunities, greater scale benefits and a developing capability.
Yet, this strategy inevitably comes with challenges and risk if not properly managed. Ultimately, if an acquired company is not given the right environment to thrive or the required attention and resource, there’s potential for devaluation and dissatisfaction on all sides.
Below are some of the key lessons I’ve learned over the years and at Techpoint when considering the integration of businesses.
Approaching an acquisition
A key pillar of your acquisition strategy will be the overarching strategic fit and identifying the right partners. It may sound obvious, but the match will go beyond product or service fit. The company culture, the personalities within the teams and the general business philosophy will have a bearing on the success of the initial phase. An acquisition means extending the team, and so having similar values and experience are an important consideration.
I think most finance teams would describe the due diligence process as a necessary evil! Whilst the scope and extent of the process will vary depending on the size and complexity of a business, acquirers must be assured of the sustainable financial performance but also of the management capabilities and mindset of the employees.
At Techpoint, we have made it our mission to take a light touch approach to due diligence. We will get the information we need but are respectful as we tailor the process to focus on the essentials, minimising disruption to the business.
At the initial stages, it’s vital to set out clear expectations. One of the key elements of this is setting out potential synergies which could be realised between the businesses; this may be in the form of an increased product or service portfolio, access to customers or cross-selling opportunities.
Similarly, buyers should also be clear about the speed of the process at this stage. There are varying approaches to this depending on a range of factors. At Techpoint, we’re motivated by operationalising a business rapidly and avoiding a protracted, drawn out and potentially stressful buying period for the seller. Our acquisitions of Golledge Electronics earlier this year and Interconics in 2021 are good examples of this, with both acquisitions completed within four months of first contact.
Considering the acquired founder’s perspective
From an acquired founder’s perspective, they will be looking for an optimal sell price but also a buyer that takes time to understand their business, that is not going to come in and asset strip but that is going to prize and nurture what they have created. This is understandable; if a founder has built a business to a position of strength, it’s vital that they see complimentary skill sets between the businesses and have a clear view on how the acquisition will build on their success.
Most successful acquisitions overcome the initial staff trepidation and management inertia through transparent and open dialogue from initial contact to the sale. Whilst Techpoint are private equity funded, we’re trade buyers by nature and prioritise offering flexibility to match the seller’s ambition. This means that in some cases, such as at Golledge Electronics, our centre for frequency control products, the founder has a non-executive role and now works two days per week.
In other cases, sellers may want more active involvement, such as the founder of Interconics, our centre for high complexity PCB assembly and design, who has become Group CTO. This will require a mindset shift as sellers become employees within a wider group, but by listening to, valuing and finding the right roles for the incoming team, there should be an exponential strengthening of the offer as you come together.
Operationalising and evolving an acquisition to create value
Once the acquisition mechanics have been worked through, it’s important to focus on operationalising the business in order to unlock the potential value in the targeted functional areas. Changes in several key areas will surface challenges to resolve. Business systems, reporting and processes will be reviewed and several healthy debates will ponder over what best practice looks like.
One of the key mindset changes buyers should adopt is the value that centralised functional expertise can deliver. An acquisition should be focussed on steering a company and helping brands to realise what may have been previously unattainable goals. The creation of Group shared service functions in areas such as IT, HR, Quality, Marketing and Finance can help the acquired businesses to achieve these goals, create capacity in business areas and free staff up to focus on the core business and customer experience.
From the buyer’s perspective, there’s often little value in diluting the specialism of a company either. If you’ve carried out your due diligence thoroughly, it’s likely that you’ll be acquiring a strong brand that leads in their market category and offers unique benefits to customers.
Techpoint has adopted a ‘centres of excellence’ approach with our four brands. These offer best in breed services within their specific area of expertise, but this is complemented by intercompany synergy and robust processes – whether that’s supply chain services, rapid prototype development or specialist electronics manufacturing, putting the customer experience first is crucial.
It’s possible to combine strengths without losing individual identities or specialisms while achieving alignment at a group level. We at Techpoint are proud of our post acquisition growth in each business and it’s a strategy that has delivered. We continue to invest in our businesses and all four of our businesses have grown in both revenue and headcount.
Acquisitions need sensitivity, care and attention to get them right. But if the right approach is taken and mindsets align, they can deliver an offer and a team that is fresh, dynamic and will go on to achieve great things.