Peter Drucker on Mergers and Acquisitions From “The Daily Drucker”

Dr. Peter Drucker is known as the father of modern management. I read his compilation of insights from The Daily Drucker every morning to start my day. It is amazing how many of his words of wisdom still apply in today’s fast changing world. Many of you may find your company being swallowed up or chopped up to remain competitive in the global marketplace. It can be a stressful experience or one that opens new doors of opportunity.

Over the past 40 years I have worked for companies that have been acquired or merged. Some have been total disasters, others half-baked outcomes and some have worked really well. Those that were successful followed the key guiding principles that Drucker sets out for acquisitions.

Let’s review those that Dr. Drucker says lead to successful acquisitions or mergers.

“Acquisitions should be successful, but few are, in fact. The reason for this nonperformance is always the same: disregard of the well-known and well-tested rules for successful acquisitions. The six rules of successful acquisitions are:

  1. The successful acquisition must be based on business strategy, not financial strategy.
  2. The successful acquisition must be based on what the acquirer contributes to the acquisition.
  3. The two entities must share a common core of unity, such as markets and marketing, or technology, or core competencies.
  4. The acquirer must respect the business, products, and customers of the acquired company, as well as its values.
  5. The acquirer must be prepared to provide top management to the acquired business within a fairly short period, a year at most.
  6. The successful acquisition must rapidly create visible opportunities for advancement for both the people in the acquiring business and people in the acquired business.”

“Successful acquisitions are based upon business plans, not financial analyses. Acquisition targets must fit the business strategies of the acquiring company; otherwise, the acquisition is likely to fail.”

“An acquisition will succeed only if the acquiring company thinks through what it can contribute to the business it is buying, not what the acquired company will contribute to the acquirer, no matter how attractive the expected “synergy” may look. What the acquiring company contributes may vary. It may be management, technology, or strength in distribution. This contribution has to be something besides money. Money by itself is never enough.”

“Successful diversification by acquisition, like all successful diversification, requires a common core of unity. The two businesses must have in common either markets or technology, though occasionally a comparable production process has also provided sufficient unity of experience and expertise, as well as a common language, to bring companies together. Without such a core of unity, diversification, especially by acquisition, never works; financial ties alone are insufficient.”

“No acquisition works unless the people in the acquiring company have respect for the product, the markets, and the customers of the company they acquire.”

“Within a year or so, the acquiring company must be able to provide top management for the company it acquires. The buyer has to be prepared to lose the top incumbents in companies that are bought. Top people are used to being bosses; they don’t want to be “division managers.” If they were owners or part-owners, the merger has made them so wealthy they don’t have to stay if they don’t enjoy it. And if they are professional managers, without an ownership stake, they usually find another job easily enough. Then to recruit new top management is a gamble that rarely comes off.”

“Even if all the rules have been faithfully observed, many acquisitions end up failing or at least take forever before they live up to their expectations. Legally the acquired business is now part of the acquiring company. But politically, the people in the acquired company become “us” determined to defend their business against “them,” the people in the acquiring company. And the people in the acquiring company similarly think and act in terms of “us” against “them.” Sometimes it takes a whole generation before these invisible but impenetrable barriers come down. It is therefore imperative that, within the first few months after the acquisition, a number of people on both sides are promoted to a better job across the lines. This way both sides see the acquisition as a personal opportunity.”

Apply these words of Drucker “acquisition wisdom” and succeed in your synergy between both the acquirer and the acquired. Ignore these gems and most likely fail, losing precious people, depleting your investment dollars and effort.

Have a Great Week!

Michael J Griffin
A Drucker Disciple
Founder of ELAvate
John Maxwell Team Founder

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