A recent article in Strategy & Business profiled the success of the Danaher corporation, a prolific strategic acquirer. Since 1984, the company has closed more than 400 acquisitions and grown to nearly $20 billion in annual revenue. Clearly, it understands how to use M&A to execute its vision.
But, what can leaders of smaller companies learn about corporate strategy and building value from this multi-billion dollar example?
I’ve distilled three key takeaways – maybe you’ll call them basic reminders – to share with entrepreneurs, founders, and business owners to use in developing their right-sized strategy and growth plans.
1. Successful long-term strategy places a priority on marketing fundamentals.
Truly strategic acquirers favor the basic indicators of market opportunity, the power of brand identity, and the strength of key assets, such as intellectual property. Small or middle-market companies often display these unique attributes. Typically founded to serve niche markets or provide unique product/technology solutions for specific customer segments, small and mid-sized companies often feature elements of attraction that may go underfunded or overlooked over time – becoming prime fodder for savvy acquirers.
Companies like Danaher are successful because they are opportunistic, seeking to create market leadership or to structure complements. Danaher’s M&A strategy focuses on the identification of essential markets with potential, and then takes a deeper dive to monitor strong brands within those markets as possible targets.
Business owners looking to (eventually) capture value from his or her company, should revisit the 4 C’s of marketing – communication, channel, customer/client, and cost – since these are the areas of interest for strategic acquirers. Make sure to nurture your brand and monitor any competitive threats to preserve your market foothold. It all works to build value in your company.
2. Building and realizing value takes long-term focus.
Danaher is known for bird-dogging potential acquisitions for as long as ten years, in some cases. Imagine what steps you could take to improve your business in that time. Even if you are not thinking about selling your company at the moment, answer the call, accept the card, and keep the lines of communication open with an interested party. Think of a potential suitor like a customer: every opportunity for communication and feedback can provide invaluable information. Don’t you want to know their interests and motivations?
Alternatively, if an exit strategy is on your horizon – let’s say within 3-5 years – consider how your executive decisions might be perceived by a potential acquirer in the future. You may need to weigh the effect, for example, of cutting costs short-term in favor of strategic priorities with a longer outlook.
3. Your metrics for success are not the same as your potential acquirer’s.
It’s like using a different yardstick. Therefore, what may look good to you, shows as “room for improvement” to someone else. And, that’s not always a bad thing. Successful acquirers search for targets where they can implement or overlay their own approach, techniques and methodology.
In the Danaher example, its management team has a well-honed protocol of metrics and manufacturing process improvement – the “Danaher Business System” – it brings to bear on each acquisition. Applying these practices, the team nurtures an acquisition and generates long-term value. During discussions with a potential acquirer, you should, of course, display your measures of success, but understand that an acquirer will bring his or her own yardstick as well.
As many entrepreneurs intuitively understand, success often can be found by adapting for a different market. Danaher’s system of big business corporate M&A can offer leaders of small and mid-sized companies some valuable lessons.