Acquisitions are a critical lever for growth, but they often fail to deliver the anticipated value (a Harvard Study suggests the failure rate is higher than 70%!). The core issue lies in a fundamental misunderstanding: executives often vaguely grasp two distinct acquisition strategies—those that boost current performance and those that truly transform the business.
At The ProAction Group, we specialize in helping PE firms navigate these challenges, ensuring that every acquisition aligns with the strategic purpose of the deal, and in the details. This distinction is crucial because a generic execution of these strategies can lead to overpaying for acquisitions, year 2 surprises, misaligned integrations, and ultimately, unmet expectations.
The Two Reasons to Acquire
Boosting Current Performance: This type of acquisition aims to enhance an existing business—either by reinforcing or adding market position, or by expanding and leveraging economies of scale. However, acquisitions in this category rarely change the company’s growth trajectory. Investors often anticipate and model these moves, but the actual integration and realization of the value is complicated. This is where many deals fall short: CEOs overestimate the impact, overpay, and struggle with integration.
Transforming the Business: The second reason to acquire is to fundamentally reinvent the business model and adapt to a changing market. These acquisitions are about redirecting the company toward new opportunities and growth paths. While this approach has the potential for extraordinary returns, it’s also the most challenging to execute. Success hinges on understanding the target, paying an appropriate price, and integrating well—areas where many deal teams fall short.
Not Every Deal is a Guaranteed Win, The ProAction Group Can Increase Your Odds!
We recently worked with a client who learned this the hard way. They acquired and merged two businesses that made the exact same product, expecting to benefit from economies of scale. Their financial models predicted significant improvements, from increased overhead absorption to higher EBITDA. Instead, they watched profitability plummet from 12% to a shocking negative 3% after consolidation. Why? They failed to consider the impact of different product mixes and customer types on their production capabilities. The good news is that these issues are solvable, and we helped them explore solutions that addressed the underlying complexity and developed / implemented tools that stabilized shared operations scheduled each part of the businesses based on its specific needs and a number of Lean Manufacturing strategies. This entire scenario could have been avoided with the right operational insight before the acquisition. Identifying the issues and complexity pre-consolidation would have avoided a 2+ year extension to their hold period and many tense lender meetings.
Another client found themselves in a similar situation, but with a twist. They bought a highly successful platform that specialized in creating custom and complex displays for big-box retailers. For two years, everything was going smoothly—until it wasn’t. Profitability started to decline, and they struggled to figure out why. After calling us in, we uncovered gaping holes in their processes, hidden until growth stressed the system. The original team knew how to run the company, but as they scaled and brought in new employees, the cracks began to show. Another completely avoidable issue that’s taken years to stabilize, while sacrificing two years of profitability.
The common thread here? Both situations underscore the importance of understanding how a strategy or investment thesis will play out on the ground—in the factory, in scheduling, and in the office. By recognizing the risks that emerge when growth stresses the system, we help our clients avoid these pitfalls before they become costly problems.
How The ProAction Group Can Help
At The ProAction Group, we don’t just help you evaluate new companies; we help you make informed acquisition decisions. Our approach involves a rigorous analysis of the details. Understanding the strategic purpose behind each deal, we dig deep into how the company will scale profitably, and how to integrate. Whether you're looking to enhance current operations or transform your portfolio, we provide the operational insights needed to avoid common pitfalls and maximize value.
Our expertise ensures that your acquisitions are not just well-negotiated and integrated but strategically sound. We work alongside your team to navigate the complexities of target valuation and post-acquisition on-boarding / integration. The result? Deals that not only meet but exceed expectations, driving sustainable growth and significant returns. Consistently.
Would you buy a home without a home inspection? A home might be priced right and may appear to offer a good return, but what issues are present that will put your home’s value at risk?
Take the Next Step
In an increasingly competitive market, getting acquisitions right is more important than ever. Contact The ProAction Group today to learn how we can help you evaluate, acquire, and integrate targets that align with your strategic goals—and ensure that your next acquisition, that every acquisition, is a success.
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