Mergers and acquisitions are governed by due diligence. They have to be. It is just foolish for one company or group of investors to acquire a target without first fully understanding what they are getting themselves into. Due diligence provides the necessary information to make sound decisions. That said, what happens when due diligence uncovers a target’s superpower?
What we refer to as a superpower, for the purposes of this post, has also been referred to as a target’s ‘special sauce’. A superpower can be any aspect of the target business that is unique and essential enough that it will be retained in its current form post-acquisition.
A superpower can be a product or technology. It can be a process, a solution, or a body of knowledge that is unique to the target business. Whatever it is, it is important enough that losing its distinct benefits during the integration is not an option.
Build Integration Around It
Something strong enough to show up in a due diligence analysis as a superpower is worth preserving. But to preserve it, the buyer cannot simply integrate it into its own business operations. Rather, integration needs to be built around it.
Perhaps you are familiar with the story of Edith Macefield and her now-famous farmhouse in Seattle, Washington. Macefield refused to sell her home to developers, intending to live there for as long as she could. She wanted to eventually die there as well.
To make a long story short, she steadfastly fought efforts to acquire her property. The developer eventually had to build its towering commercial building around it. To this day, the house remains on the same site, surrounded on three sides by the modern world.
That house was important enough to Macefield to hold on to. And now, though she has been dead for quite a number of years, it is important enough to both her family and the city to keep it intact. That house was Macefield’s superpower. It still stands as a monument to what made her who she was.
Emphasize Its Strength
In addition to building integration around the target’s superpower, emphasizing the superpower’s strength will only help make it stronger. Again, a comprehensive due diligence analysis is key here. Diligence reports should reveal the strength of the superpower in question. It should reveal why that particular technology, process, etc. is so valuable.
The strength of Macefield’s house is that it is a symbol of doing the right thing. Every day it remains demonstrates that average people can fight for what is important to them and win in the process. Likewise, the strength of a target company’s superpower can be leveraged to make the entire company stronger moving forward.
Develop New Best Practices
The one trap of a target company’s superpower is not adapting the buyer’s business to it. If the superpower is to be retained, the buyer has to figure out a way to make it work with its own existing culture, processes, etc. The best way to do that is to develop new best practices that act as a bridge between what already exists and what the superpower brings to the table.
Plenty of acquired companies have been blown to bits because buyers didn’t pay attention to what due diligence reports were telling them. They completed their acquisitions without recognizing target superpowers. As a result, those superpowers were lost. And when the superpower goes, so does the reason for acquiring a target.
When due diligence uncovers a target’s superpower, it is in the buyer’s best interest to do something with that knowledge. Otherwise, what is the point?