Easier Done than Said

"A strategic acquisition is one where the combination of the assets and activities of the target company increase the value of the acquiring company on a non-linear, upward basis."

-- Charlie Crystle

An advisor to one of my clients happens to be Charlie Crystle, the well-respected serial entrepreneur and advisor to start-ups. (He sold his first company at 32 for $15 million.) Anyway, I was reading a posting to his blog about strategic vs. linear acquisitions and was taken by his comment that:

“. . . for strategic acquisitions, the multiples range from 5 times revenue to up to 100 times revenue — there’s really no cap on strategic value, just the eye of the beholder."

It was that last phrase, the eye of the beholder, that attracted my attention as a communicator.

Charlie’s point is that in a linear acquisition you basically get back what you put in. Assuming a similar cost structure to your own, an acquisition that adds 10% to profit will add 10% to market capitalization and the stock price. In a strategic acquisition the whole is greater than the sum of its parts. In combination, the two companies can do something they could not do before -- like create new technology leading to breakthrough products or processes. Charlie lists several elements that make an acquisition strategic -- but the basic idea is that it moves the growth curve rather than just push you up the growth curve. (My paraphrasing.)

So what’s the communications angle? Well, market value is an expectation of the future based on an understanding in the present. So explaining the strategy -- including relevant technology and business issues -- is vital. Don’t expect “the beholder” to automatically get it right and buy your stock. Successful acquisitions (and most successful innovations as well) result from seeing things that most people don’t. If your strategy were self-evident, everyone would have seen it already and there would have been no business opportunity in the first place. Acquisition strategies are hard to communicate for several reasons, among them:

• The target audience is impatient
• You have to disclose enough but not too much
• A certain level of background is required -- which slows you down
  
• The strategy has to be both simple and sophisticated to win points

Strategies are often easier done than said. It may be easier to develop a strategy that explains an acquisition than it is to explain the strategy itself. And if you don’t, you won’t get those 5-100x multiples Charlie’s talking about.