Rules for acquiring business

ref: HBR Sep 2007


5 rules to follow when acquiring companies..

1. Stick to Adjacent Spaces. Dont buy businesses just because it's profitable today. Buy when it extend and/or build on what your business is already offering. Seek synergy rather than mindless diversity.

2. Bet on Portfolio Performance. Measure and manage from portfolio perspective. Meaning, dont make just a few big bets. Manage sizeable deals with sufficient calculated risk. Remember, no one is perfect. So no deals are perfect. Bad things happen. So hedge against it with proper portfolio management.

3. Get a Business Sponsor. Never let the staff drive the acquisition. You need someone with muscle with the conviction to see thru the whole acquisition. Sponsor is accountable for the success and provide regular progress report.

4. Clarity on how acquisition should be judged. Not all acquisitions are the same. Each acquisition served an unique purpose. Therefore, should be careful not to compare it against with the incorrect types. Still, there should be performance indicators to track the progress and outcome.

5. Dont shop when hungry. When you're hungry, your judgment will be blurred. Mistakes will be made easily. When you are not desperate, you will have clarity and be able to make better judgment.

Make acquisition because of Strategy; and not for attractive or popular deals.