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An acquisition presents a perfect chance for a business organization to expand its operations and provide a prospect of increased revenue. As a result, many managers jump into an offer as soon as it surfaces. However, the deal is not always smart and therefore, calls for critical evaluation. In his article “rules to acquire by,” Nolop offers insights into acquisitions by outlining essential rules that must be followed.
First Rule: Sticking To Adjacent Spaces
An acquisition is not always the first option to do, and if done, should not involve faraway strange organizations. Instead, a business has to stick to adjacent spaces to succeed in acquisitions. Adjacent spaces are nearby logical extensions the business can venture into to succeed in the market.
In this case, extending to the nearby opportunity makes sense compared to venturing into dark far away territories where one knows nothing about. A nearby extension promotes cultural orientation of the business, leverage of expertise of the management, and provides more insights into the customer.
In addition, the company manages to create brand consistency because sticking to adjacent spaces does not alter the brand image, but rather strengthens it. When sticking to adjacent spaces, one should consider alternative ways of adding value to the business rather than acquisitions (Nolop 129).
Second Rule: Bet on Portfolio Performance
This rule suggests that managers should consider performance rather than the size of the deal during acquisitions. This means managers should make small successive acquisitions rather than one big acquisition. In this case, the risks are hedged and management process is simplified. Making small acquisitions ensures effective management of financial results, and provides a learning curve to the business.
Third rule: Get a Business Sponsor
A business sponsor is a party supposed to initiate and run the acquisition as owners. Sponsors functions as a corporate development group. They are responsible for the running of the acquisition and are required to provide a detailed report about the operations of acquisitions.
As soon as a business enters into acquisition agreement, plans should be made to have a sponsor who will ensure accountability because he or she will own the process. This is not an exception if the company wants to succeed in a given acquisition. The sponsors or corporate development group owns the entire process implying that the office of the human resource management is not supposed to run the acquisition.
The sponsors should be involved in talent retention, formulation of policies to govern human resource, and ensuring the flow of finances. In addition all reports made to the management should incorporate business sponsors. If the acquisition wants to integrate a new information and technology facility in the acquisition, the business sponsor should be closely involved.
This rule essentially implies that business leaders behind the acquisition should be positioned to steer the deal to the required heights. In this case, they are better placed to notice any danger and provide a quick solution and accountability.
Fourth Rule: Judging the Feasibility
Although some acquisition deals may seem lucrative, critical examination is essential before final decision making. An acquisition mainly involves bolt-on and platform acquisitions, and the management should differentiate between the two before making final decision. A Bolt-on acquisition as the name suggest, bolts into the business framework, thereby fitting in the process accurately.
In this case, business organization need not reorganize to accommodate the business, but rather keeps on with its operations with new energies. However, bolt-on acquisitions have short term returns and focuses on business synergies that are portable. One should therefore first consider ways in which the synergy will propagate in the business proceeds and share in the cost before accepting it.
On the other hand, platform acquisition propels the company into innovative business spaces. However, they are risky and difficult to manage, are dominated by strategic issues, and do not prioritize cost saving and near-term opportunities for revenue generation.
When making considerations for platform acquisition, one should evaluate cultural compatibility, attitude of customers towards the same, possibility of accelerated growth, and whether the business requires such kind of acquisition.
Fifth Rule: Do Not Shop When You Are Hungry
This rule implies that managers should not rush to make impulse buying in time of urgent need. Instead, one should clearly perform a strategic analysis of any situations to find alternatives to an urgent situation. In the context of acquisition, this rule implies that one ought not to make an acquisition as a solution to poor performance in the business.
Instead, analytical skills and emotional disciplines should apply to the situation before final decision making. Reviews on people involved in the business should be sampled to ascertain the cause of poor performance before making a decision.
In this case, one should focus on key issue and bring the idea out as a form of proposal. The proposal should be expanded and explained. Thereafter, a memorandum of decision should be created for the given need (Nolop 137).
Conclusion
Based on the rules by Nolop, it implies that one should not rush in making acquisitions. However, in case the situation deems necessary, proper care should be taken before entering into the acquisition.
Considering the rules given, it implies that an acquisition should be managed as a process whereby one is supposed to map out the stages involved. During the process, special attention should be given to the events, processes or situations that are likely to go wrong or right in all stages. In addition, tools should be standardized and the process improved continuously.
Works Cited
Nolop, Bruce. “Rules to acquire by.” Strategic Direction 24.4 (2008): 128-140.
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