Documens Boss

Points:

• Opportunity for those who are prepared
• Growth from recession
• Small & mid-sized acquisitions continue
• Outcome based profiling
• M&A Strategic Plan
• Innovation & Productivity versus Revenue & Profit

The global, financial storm clouds we are continuing to weather have, so far, not had any detrimental effect on small and mid-market M&A activity within the ECM, BPM and document centric BPO sector where we focus. According to the New York Times “DealBook” 2011 was called the “year of M&A”

As is common in many technology sectors that the majority of the deals take place are in the small and mid-market size.  Maybe even more so in this sector due to the sharp fall-off in numbers as you increase in revenue.  Typically at Document Boss we find that many of the larger players are looking to acquire companies with revenue above $30M.  It is above this size that proportionally there are fewer companies.
 

In 2012 it is likely from what we have seen so far that deals will still continue at a reasonable pace as has been seen in recent months. Companies with surplus cash will be able to take advantage of their less fortunate competitors, who are likely to struggle as the financial rain falls, drowning out profitable growth. As long as there are ambitious, cash rich companies and companies that want, or need, to sell, M&A activity will continue. Consequently, despite current economic forecasts, we should not see a downturn in M&A activity.

Another driver for continued acquisitions is based upon what we are seeing from this sector as the technology sectors converge and more vendors increase the technical capability of their solutions.  The clear sub-divisions of the past start to merge. What was once a clear technical differentiation or offering, now it may not be so clear and other USP factors come in to play outside of software features?

Rather than staring into the distance, anticipating a soaking from the ensuing economic rain, there are some excellent opportunities for the companies that are prepared, or willing, to do some M&A strategic planning and thus avoid the typical pitfalls that stymie so many acquiring companies.

In many instances, a lack of preparedness stems, not from a lack of experience, as that can be drafted in, but from arrogance and an inability to accept that the skills required to drive revenue for the company or read a balance sheet will not necessarily translate into transacting successful acquisitions.  In general, companies exhibit a severe lack of willingness to plan ahead when seeking growth through acquisition.

Opportunities are likely to arise which will often require decisions and action to be taken swiftly. In highlighting this point, I am not advocating rushing into deals unprepared and in a gung-ho manner but strongly recommending that forethought is given to create a success based template of "right" fit. This is in contrast to attempting to shoehorn any random opportunity that arises, just because it happens to be a competitor or from a closely related technology sector and has landed on your desk.

A carefully constructed M&A strategic plan, incorporating a success based profile/s can be used to smooth the acquisition process and allow senior executives to make faster decisions, increase acquisition success, minimise risk to their company and, in many instances, to their own career.

Unfortunately, a high percentage of companies do not undertake the rigorous level of planning required: even though the formulation of an M&A plan will undoubtedly increase the likelihood of their acquisition being a success, the majority of companies in the ECM and other sectors fail to plan and, as a consequence, plan to fail. The "common sense" logic of planning and high M&A failure rates (a recent KPMG study found that more than 85% of all M&A deals fail) do not deter the bold.  For some, it will be due to a certain degree of arrogance; a pot full of money does wonders for your self-belief and confidence, even when operating outside of your area of expertise and knowledge.  As for the meek, well, they have probably not accumulated the cash in the first place and if they had they would probably not have the inclination or the drive to take on an acquisition.

So, despite small and mid-sized market opportunities, many acquisitions will not deliver and the trend of failure rates in the 65 to 85% range is likely to continue. However, the number of acquisitions will not drop significantly, if at all.  The real opportunity is not to simply find the "Beauty in the Rain" but to have the insight to ensure that you can successfully transact the deal and leverage the benefits.  

Despite the scary headline failure rates, success is easily achievable for those that are willing to stop, THINK, plan and prepare.  In a fast moving industry, when monthly and quarterly revenue and profit figures need to be met, to stop is not an instinctive reaction.  However, with the right takeover there will be many innovation and productivity benefits to be realised that can be leveraged to generate long term revenue and profit returns for the buyer.  Document Boss senior executives have over 120 years of experience specifically within this sector and can highlight the steps you can make to minimise your acquisition risk and maximise your return on your M&A investment. To contact us, click here

Don't reach for an umbrella and hunker down, reach for some M&A planning, the creation of an acquisition process and reap the benefits of the beauty in the rain.