Business Not Financial Strategy
“There ain’t no bargains,” and “You get at most what you pay for,”
Successful acquisitions are based upon business plans, not financial analyses. Acquisition targets must fit the business strategies of the acquiring company; other wise, the acquisition is likely to fail. The worst acquisition record of the last decades of the twentieth century was that of Peter Grace, the longtime CEP of W. R. Grace. He was a brilliant man. He set out in the 1950s to build a world-class multinational through financially-based acquisitions. He assembled the ablest group of financial analysts and had them scout all over the world for industries and companies with a low price/earnings ratio. He bought these companies at what he thought were bargain prices. The financial analysis of each Grace purchase was impeccable. But there was absolutely no business strategy.
By contrast, one of the most successful examples of company growth based on acquisitions was the one that underlined the stellar performance of General Electric during the tenure of Jack Welch as CEO from 1981 to 2001. The largest single cause of the company’s growth in sales and earning – and the resulting rise in the company’s market value – was the acquisition-based expansion of GE Capital. Of course, not all of them panned out. In fact, there was one major failure, the acquisitions seem to have worked out magnificently underlying practically all of them was a sound business strategy.
ACTION POINT: Think through an acquisition made by your organization. What was the basis of the acquisition: strategic or financial? How has it worked out?
What the Acquirer Contributes
The successful acquisition is based on what the acquiring company contributes to the acquisition
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.
The acquisition of Citibank by Travelers was successful because the acquiring company, Travelers, thought through and planned what it could contribute to Citibank that would make a major difference. Citibank had established itself successfully in practically every county of the world and had, at the same time, built a transnational management. But in its products and services Citibank was still primarily a traditional bank, and its distributive and management capacity way exceeded the products and services commercial banking can produce and deliver. And Travelers had a good many of these products and services. What it saw itself as being able to contribute was greatly to increase the volume of business the superb Citibank worldwide distribution system and management could sell, and at little or no extra cost.
ACTION POINT: Before making an acquisition, focus on contribution, not synergy.
“Everyone should have health insurance? I say everyone should have health care. I’m not selling insurance.”
“Lies Have expiry dates but the truth never expires”
“Seeing modern health care from the other side, I can say that it is clearly not set up for the patient. It is frequently a poor arrangement for doctors as well, but that does not mitigate how little the system accounts for the patient’s best interest. Just when you are at your weakest and least able to make all the phone calls, traverse the maze of insurance, and plead for health-care referrals is that one time when you have to your life may depend on it.”
Ross I. Donaldson
“The way to misuse our possessions is to use them as an insurance against the morrow. Anxiety is always directed to the morrow, whereas goods are in the strictest sense meant to be used only for to-day.”
“Q: Why do you use swear words on your blog, but never the F word?
A: Because I’m saving the F word for the day when I write a blog post about the for-profit health insurance industry and the way its CEOs become wealthy by not only preying on, but exacerbating, other people’s personal tragedies.
Happy Monday, everyone :o)”
“You do what you have to do to give people closure; it makes them feel better and it doesn’t cost you much to do it. I’d rather apologize for something I didn’t really care about, and leave someone on Earth wishing me well, than to be stubborn and have that someone hoping that some alien would slurp out my brains. Call it karmic insurance.”
“Pick a leader who will fund schools, not limit spending on education and allow libraries to close. Pick a leader who chooses diplomacy over war. An honest broker in foreign relations. A leader with integrity, one who says what they mean, keeps their word and does not lie to their people. Pick a leader who is strong and confident, yet humble. Intelligent, but not sly. A leader who encourages diversity, not racism. One who understands the needs of the farmer, the teacher, the doctor, and the environmentalist — not only the banker, the oil tycoon, the weapons developer, or the insurance and pharmaceutical lobbyist.”
“We were poor back then. Not living in a cardboard carton poor, not “we might have to eat the dog” poor, but still poor. Poor like, no insurance poor, and going to McDonald’s was a really big excitement poor, wearing socks for gloves in the winter poor, and collecting nickels and dimes from the washing machine because she never got allowance, that kind of poor… poor enough to be nostalgic about poverty. So, when my mom and dad took me here for my tenth birthday, it was a really big deal. They’d saved up for two months to take me to the photography store and they bought me a Kodak Instamatic film camera… I really miss those days, because we were still a real family back then… this mall doesn’t even have a film photography store anymore, just a cell phone and digital camera store, it’s depressing…”
“Pick a leader who is strong and confident, yet humble. Intelligent, but not sly. A leader who encourages diversity, not racism. One who understands the needs of the farmer, the teacher, the welder, the doctor, and the environmentalist — not only the banker, the oil tycoon, the weapons developer, or the insurance and pharmaceutical lobbyist.”
“Insurance companies sell what might happen tomorrow. Historians sell what certainly happened yesterday.”
“Both terrorism and insurance sell fear — and business is business”
“If you look at how the federal government spends our money, it’s an insurance conglomerate protected by a large, standing army.”
“Getting life insurance is like making a bet you can’t win. If you live, you don’t get the money. If you die, you don’t get to enjoy the money.”
“Private ownerships of a …slave chip is illegal in many polities. It tends to be a government monopoly, much like other forms of violence. But I had fallen among pirates and life insurance underwriters.”