Did We Make the Wrong Acquisition?

That was the question the President of a specialty polymer division was asking himself.

The President had been struggling with a business unit that was not meeting expectations. Four years ago, the company made a strategic acquisition, hoping it would be a jewel in their crown. However, the newly acquired business unit started showing signs of trouble soon after integration activities were completed; sales slowed, operational inefficiencies crept in, and competitors began closing in. Despite attempts to remedy the situation the problems persisted, and the company was considering divesting the unit. The President turned to Growth Arc Advisors for guidance in assessing options.

The Dilemma

The acquisition had promised growth and synergy. However, four years down the line, it was anything but successful. Sales had plateaued, operational hiccups were common, and the competition seemed to have found a way to capitalize on the unit's weaknesses. The President had tried the usual fixes: integrating the unit into the company's systems, providing additional sales training, organizing sales blitzes, and implementing demand planning systems. Nothing seemed to have the desired effect.

Key Insights

Recognizing the urgent need for fresh insights, the President enlisted the expertise of Growth Arc Advisors. These advisors undertook a comprehensive assessment of the business unit, examining its market dynamics, competitive landscape, and the integration actions taken since the acquisition. Their findings were illuminating, shedding light on the blind spots that had plagued the unit's performance for years.

Based on this assessment, several critical issues were brought to light.

• During integration, the go-to-market approach was altered, shifting to a leveraged sales force that was ill-suited for the acquired unit's needs and spread across multiple competing product lines.
• The value chain was unique, demanding a proactive sales approach which was not the norm for the company's existing teams and the product line was more complex, requiring specialized technical knowledge for sales teams.
• Important business development resources were removed, leaving a gap in the unit's growth capability.
• The new unit's operational requirements were crucial for maintaining customer satisfaction. However, these requirements differed significantly from the company's existing practices. As a result, implementing standard corporate procedures led to unintended consequences, affecting service levels and responsiveness.

The Blind Spot

Leaders often underestimate the complexities involved in integrating acquisitions.

• Integration decisions are frequently made prior to close, relying on early assumptions that go unreviewed after the acquisition is completed.
• Timelines for integration are often compressed, driven by the desire to quickly demonstrate the anticipated synergies.
• Standard corporate practices are often believed to be among the key improvements that the acquiring company brings to the new unit.
• Valid concerns raised about integration plans are sometimes dismissed as mere resistance to change.

This rushed approach can overlook the unique characteristics of newly acquired units, highlighting the need for a more nuanced understanding and reevaluation of these viewpoints.

With the insights from Growth Arc Advisors, the President realized that the acquired unit was mistakenly integrated as if it were identical to the company's existing business units. This fundamental oversight was at the heart of the underperformance issues.

Rehab or Divestment?

Understanding this root cause, concerns still remained about the unit’s long term fit in the company portfolio.

Growth Arc’s assessment revealed that the unit’s fundamental market position was sound, and with key capability changes the unit should be able to regain some portion of its prior performance. These changes included:

• Reinstate dedicated sales and business development resources focusing solely on the unit’s customer’s unique technical needs.
• Relax corporate operational mandates to create specific guidelines distinct from the rest of the company, allowing the unit the flexibility to operate responsively to customer requirements.

Path Forward

With a clear understanding of the root causes of underperformance, the potential for unit performance, and a clear action plan to resolve performance issues, the President was confidently able to make make a clear case to company leadership for the required investment, and start the unit on a path to recovery.