Mergers and acquisitions (M&A) have long been a driving force for companies pursuing exponential growth, gaining market share and creating shareholder value. History has shown that well-executed M&A strategies can be transformative and produce impressive results.
For example, Disney’s acquisition of Pixar in 2006 revived the animation giant’s fortunes, although market analysts were skeptical of the move when it was announced. Speaking to CNBC 15 years later, Bob Iger said this may have been the best acquisition decision during his time at Disney. “It set us on track to achieve what I wanted to achieve, which is scale when it comes to storytelling,” were his exact words.
But the Disney-Pixar marriage isn’t the only one that turned out to be a huge engine of growth. Facebook’s purchase of Instagram in 2012 allowed the social media behemoth to dominate the photo-sharing space. There are many such examples in the history of companies around the world.
But not everything is rosy in the world of M&A. It’s a complex and substantially risky decision, not for the faint hearted. It is essential to approach the decision and process carefully and thoughtfully.
Over the years, with experience navigating the complicated world of M&A, including eight acquisitions in the past few years, I’ve developed five must-have elements to consider for a successful M&A.
Be alert to revenue synergies
One of the critical factors for a successful acquisition is the ability to realize revenue synergies. More important, however, is not to assume that this synergy will come about automatically just because it seems feasible.
Making a decision about the post-merger consolidated revenue potential involves a careful analysis of the growth potential and a clear understanding of how to maximize synergy. Consider acquiring companies with high sales velocity and exponential growth potential to maximize success. Analyze the target’s product offerings, customer base, and sales channels to identify cross-sell, upsell, and market expansion opportunities.
For example, in 2015, PayPal acquired Braintree, a payments company that owned the mobile payment service Venmo. It was a strategic and wise move at a time when digital payments were just taking off globally. Now in 2023, PayPal relies on Venmo to drive adoption and use of the company’s digital payment services. The two operations are expected to converge next year. This acquisition will allow PayPal to capitalize on the growing peer-to-peer payment market and strengthen its revenue streams.
Don’t let refactoring mess up your go-to-market strategy
Tech CEOs often make the mistake of assuming a product will integrate seamlessly into their existing tech stack, especially with an entry-level acquisition. However, this is not always the case.
Before making an acquisition decision, take the time to evaluate the target company’s go-to-market (GTM) strategy and the ease of finding, buying, and deploying their products. Focus on creating a new integrated version in the future to give yourself a longer runway to fix any issues. This allows customers and employees to see a roadmap for future success.
