Ask just one question- you could save millions
This week I had the pleasure of meeting a number of highly successful non- executive directors, investors, acquisitive corporates and venture capital experts. In every case each person could highlight where an investment had not reached its potential because of people. In every one of the scenarios just one people related question would have been enough to raise the alarm bells on the investment and lend itself to more digging for information.
One in particular that sticks in my mind was with a CEO of a global recruitment business. He and his team were looking to expand in APAC through acquisition and had identified a target company and were some way down the line. Both parties had met (TC) several times and the final stage was a trip to Singapore for all. The leadership team of the target organisation travelled from Hong Kong, Australia & Singapore, my contact had travelled with two of his team from London.
The trip was going well, the leaders were all well informed, the market was exciting, the office and team all seemed great. But for one casual question. My contact asked the Chairman (who had travelled from Hong Kong) casually over dinner what he was doing for the rest of the week. "Running one of my networking club breakfasts" was the response. "Networking club?" my contact enquired. To cut a long story short the Chairman in question ran another business, in the same recruitment space, though operating at a more senior level and was running a networking event the following day. Further investigation revealed that leads from this business accounted for 42% of the revenues of the business they were looking to acquire. Further conversation identified that the Chairman was not interested in selling his business.
Whilst there is not anything wrong with running multiple businesses, indeed you would expect a Chair to have multiple interests, to sell a business so heavily reliant on one single person sharing leads for its revenue, with no guarantee, is risky. Indeed this might have worked - who knows?, does it matter? - that's not the point. The point is that had it not been for this simple question the acquisition would have gone ahead. The point is standard due diligence had not uncovered this. The point is, this is just one question.
Multiple research shows that most mergers and acquisitions fail. The failure rate is estimated to be between 60 & 90%. According to Deloitte’s only 23% of acquisitions will earn their cost of capital, 47% of executives will leave in the first year of integration and 75% of executives will have left by the third year. The majority of reports show that corporate culture will make or break a deal and that acquisitions succeed or fail based on integration.
All too often investors overlook the people element in an acquisition. Whilst they may all say they do this well - in reality they're not experts. Due diligence is normally done by advisors (bankers, lawyers) who often, when it comes to people and talent, do not understand what they should be looking for. They aren’t, and usually have never been, operators, so critical dependencies in a business’s people operations can elude them.
So - if you're going to invest in a business - ask the simple stuff- or ask people experts like us to help - you have no idea what you may uncover that could, literally, save you millions.
For more information on reducing people risk in acquisitions visit www.talentintuition.com connect, call me on +44 7990 751 029 or email Alison.firstname.lastname@example.org