Acquiring Market Share: Why the recent Proactis acquisition of EGS Group may be a cup half-empty transaction by Jon Hansen

Posted on January 15, 2014

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“The Proactis acquisition of EGS is set to provide access to the UK public sector. The joint customer list ranges from central government agencies and mid-sized companies in just about every industry sector, a variety of local governments, authorities and charities.”

In a post I wrote this past September titled “BREAKING NEWS: Is the acquisition cup half full or half empty: A tale of two takeovers!” I talked about the high percentage of M&A failures and the reasons for them.

One of the biggest issues to be considered is the basis for the acquisition.  Specifically, is it strategic in that it capitalizes on key synergies including extended service capabilities and cultural compatibility, or is it one that is based predominantly on financial considerations and expanding market share.  There is of course a distinct difference between the two.

With the former there is a mid to long-term outlook in which the acquisition reflects a well defined strategy that has been solidly in place for some time.  It is in essence a proactive move made to enhance a big picture outlook.

The latter motivation for an acquisition is by nature reactionary in that it is an “in the moment” move that is reminiscent of a strategy in which the end picture is yet to be known.   Like random puzzle pieces scattered across the floor, the acquiring company is simply responding to a fluctuating SWOT reference model.

SWOT

SWOT-ting at success?

The real question is how do you determine if an announced acquisition is a proactive move associated with a well thought out plan, or a reactionary decision designed to garner media attention and short-term gain?

Based on experience, an early indication is how the acquisition is heralded in a press release.

When you see statements such as “provide access to a new or larger market,” or “acquired annual revenues,” the warning lights should begin to flash as these are indications of a whats in it for the companies as opposed to the clients scenario.  One might even venture to call it the ultimate “it’s about me” transaction, in that there is a significant emphasis placed on how the move benefits the M&A participants.  By the way, the benefit to the company being acquired is that they see the transaction as being their road to increased traction – something that they were unable to accomplish on their own.  I call this the fear of falling behind or the we can’t do it ourselves factor.

Conversely, a press release that talks about “expanding the breadth of procurement services” a company offers, or augmenting the acquiring company’s “technology-enablement strategy” with little or no mention of annual revenues or market share, reflects a move that is grounded in a well thought out evolutionary strategy.  In short it enhances success as opposed to creating it.

Now you might question whether or not the above is a reliable guideline for assessing the viability of a just announced acquisition.  Fair enough as there are no absolutes.  However if you do your homework, you will likely discover the same trending that I have seen over many years – and the reason why the vast majority of M&As are deemed to be failures.

In this context, the news of Proactis’ acquisition of EGS Group appears to be anything but promising.  Only time will tell.

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Posted in: Commentary