My dad used to work in forestry. He loves plants and trees. He tinkers with trees. I wouldn’t have known you could tinker with trees if I hadn’t watched him do it.

He lives in Alaska. Not a typical fruit tree kind of place. But he likes apple trees. So, he started playing around with grafting. He figured out an apple tree root-stock that handled the weather and then grafted in branches that would produce the apples he was looking for.

Now he produces more apples than he knows what to do with.

A successful acquisition is like a good grafting.

Most owners of small and medium-sized businesses are intimately involved with the growth and development of their business. Relationships with partners and employees are often close. Like family. Sometimes literal family.

Most owners that I talk to who are considering an exit from their business have received offers from larger companies to buy them out. These offers are usually attractive, stroke their egos and present a significant temptation.

Despite this, many are not sure that they want to sell their business. After all, it’s their baby. In a sense, the business is an extension of themselves.

Additionally, they are often concerned that everything they’ve built will just be absorbed and lost in the acquiring company.

Most owners express concern about their employees – they want to make sure that they’ll be taken care of. That their futures and careers are secure.

The big question becomes: Should we sell to an outside buyer?

How to know if we should sell? (When we want to protect our people and what we’ve built?)

These owners are rightfully concerned about whether “the grafting process” will be successful. Most aren’t aware of the data, but they hear anecdotes about other business acquisitions that went badly.

The anecdotes are accurate. While estimates range, Harvard Business Review reports that at least 60% of acquisitions result in a loss of value.

Now, this usually means that the seller does fine. But the company that they sell – doesn’t. Which matters if you want the legacy of your business to continue.

Perhaps surprisingly, this sometimes results in the practice of original owners buying their companies back. Which allows them to protect what they’ve built.

But that is a temporary fix. No one leads or lives forever.

So, how do you know if you should sell when price isn’t your only consideration?

Consider what you are “grafting” your company onto. Fruit trees need to be similar to the tree they are being grafted onto. You can’t graft an apple branch onto a spruce tree. Or a banana tree.

It’s the same with your business. If your hope is that it will recognizably grow and flourish post-acquisition, it needs to be grafted onto a company that is similar or aligned in key areas.

Six Areas of Alignment for Successful Acquisitions

• Values and Culture: Values and culture alignment are central to a successful acquisition. You should not expect the acquisition to be sustainable if there are significant differences between the values and culture of the organizations.

The two cultures will reject each other at points of misunderstanding or disagreement along lines of values and culture. Either the acquiring company will lose what they hoped to acquire, or they’ll give up and just cannibalize the acquired company for tangible assets.

• Purpose or Vision: The two companies don’t need to have the same sense of purpose or vision – but they should be compatible. If the acquired company begins to feel like its sense of purpose has been undercut by the acquisition, this will typically result in either resistance or demotivation (and turnover) among key staff.
• Leadership: Many acquisitions stumble over leadership issues. Often, it’s part of the agreement that the leadership of the “acquired” business will stay in their positions for a set amount of time (often two to three years) to help ensure a successful transition.

This means that these owners or executives – who are used to running the show – are now just employees in a potentially much larger corporation. Many find they struggle to want to come to work. Have you negotiated what you would need to be successful and content during the transition period?

Does the acquiring corporation have skilled leaders who are ready to step in and begin to assume responsibilities in an organization that they may not be familiar with?

• Operations: Operational practices don’t need to be the same, but you will want to explore what changes will be triggered by the acquisition. For example, will the acquired company need to adopt a new set of policies and procedures? Will it need to adopt new contracting processes, software platforms or change relationships with vendors? Will there be a physical integration? Will people need to relocate?

Additionally, to what degree is there redundancy in operations between the two companies and how will those redundancies be addressed?

Each of these changes may have unanticipated expenses or challenges associated with them.

• Finances: Financial considerations often seem as if they were the most obvious – a price and purchase terms.

But financial expectations and management systems often have further implications for a successful acquisition.  Has there been an accurate evaluation of the tangible assets and value-add to the new company? Are success expectations and indicators clear? How will financial management systems be integrated?

• Market: How will the market respond to the news of a change of ownership? What increased value (if any) can the market expect to receive? Is there a possibility of potential? What about trust? To what degree is it important that your clients know the owners and management? In some businesses this is critical. In others, not so much.

Most owners will find it difficult to objectively and accurately answer questions about a market response. It may be worth conducting a simple market assessment to gain a stronger and more actionable perspective.

Making Your Business More “Graftable”

While all businesses will have differing levels of compatibility, you can increase the compatibility of yours by taking three simple actions:

• Clarify your “soft” attributes: Perhaps counter-intuitive, but the clearer and stronger your values, culture, sense of purpose and other “soft” attributes are, the easier it will be to integrate.

This is for several reasons:

• It’ll be more obvious who the company is and isn’t a fit with.
• A smart buyer will recognize and want to protect a strong and successful culture.
• There will be more internal resiliency to change.
• It will be more obvious where needed changes should happen. (As opposed to wholesale and seemingly arbitrary changes.)
• De-personalize your leadership: Begin shifting your company towards strong leadership and management habits, practices and systems. Shift away from leadership that is strongly dependent on specific individuals and what they know, their experiences and relationships.

Create a company that is easy to lead. Not one that is highly proprietary and can only be led by you.

• Build strong, repeatable and well understood operating practices: Similar to de-personalizing leadership, the more your company knows how to operate itself, the more likely it will be allowed to – assuming there is alignment between the value it produces and the value the buyer wants.

By ensuring a close alignment and doing your preparation work, you’ll dramatically increase the likelihood of your company surviving an acquisition. And not just surviving but taking good care of your staff, customers and legacy.

Take good care,

Christian

Read my recent article in Forbes.com: Four Ways Leaders Sabotage Their Own Success (And How To Stop.)

Would you like to stop running in circles with conflict at work? Read my book Conflict and Leadership

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