Why Buy?

If  you are contemplating growth through acquisition, let me offer one rather obvious piece of advice. Know why you are buying.

At Capstone, we impose a strict and simple rule. Have ONE reason, and one reason only. A single reason, a single strategy, a single company: that is the discipline of success. Trying to fulfill multiple needs through one acquisition will meet none of them particularly well.

Think back to the infamous AOL–Time Warner merger. The press release issued to announce the deal is very revealing. Here is what it said:

“No company will be able to better capitalize on the convergence of entertainment, communications, and commerce… the possibilities are truly endless. The true value of this union lies not in what it will do today, but what it will do in the future.”

While possibilities are endless, actualities can be avoided. AOL-Time Warner fell victim to an undisciplined strategic approach. Lacking a single, specific rationale, the merger became that most dangerous and wasteful animal: a solution in search of a problem.

Here for contrast is a press release that a client of mine, a German manufacturer, released after we helped them acquire an American competitor:

“This acquisition will allow us to accelerate our growth strategy to manufacture and distribute our products in the U.S. market.”

No glowing rhetoric here, but the reason for acquisition is clear: expand the customer base by entering a new market.  Unlike the more spectacular AOL-Time Warner merger, this has been a successful and profitable marriage.

Singularity gives focus, and focus generates results. You can read by a defuse light, but to cut through steel you need a laser beam.  Our German client had a focused acquisition effort and was successful because of it. If you want a profitable result, follow the Capstone rule: have only one reason to buy.

What might your objective be? Share it here (you can disguise the details) and I’ll give you my feedback on your acquisition approach.