Acquisitions and cultures: The right fit is the bottom line for both; make your decision after careful research

Editor’s note: Mal Mixon, former chairman of Invacare Corporation and a well-known entrepreneur, will regularly share his business advice and experience with Smart Business readers. Ask him a question at [email protected], and your inquiry could be the inspiration for his next column.

Q: I’m been growing my business organically the past several years and have concluded that in order to accelerate growth, I need to look at acquisitions. From your experience, what are the top factors to consider when evaluating the type of company to acquire?

A: I think it is essential to include acquisitions if you have a long-term growth plan. At Invacare Corporation, we wanted to grow 50 percent organically and 50 percent by acquisition. You can set it at 60/40 or at anything you want. It just felt like 50/50 was right.

During the period I ran Invacare, we did more than 50 acquisitions. They generally fell into three categories:

  1. Geographical expansion, such as in another area of the country or a foreign country.
  2. A new product line that uses your current distribution system. For example, wheelchairs and beds, in my business, are sold through the same channel, to the same people, to the same customers.
  3. Consolidation of your industry. As an industry consolidates, you should become a much stronger player and improve your sales and margins. Improved profitability is consistent with improved market share.

As far as what you look for, we always had an acquisition team to examine a business in every way they could. You can’t collect too much information. Sometimes even casual conversations are as important as formal presentations.

Try to find out if the business proposition is presented fairly and if you understand everything going on.

I never did an acquisition that wasn’t accretive to the shareholder. It always added to my earnings. We were able to do acquisitions because we had a good, positive cash flow and a solid line of credit from the bank. If you don’t have good cash flow and you don’t have a lot of credit, forget it.

Q: How important is culture when merging two organizations, and what pitfalls exist when trying to merge two cultures that may not perfectly mesh?

A: There are always issues with culture when merging two companies. In my case, I always thought that Invacare was the preferred culture. But we were always sensitive to other companies’ cultures and tried to blend them in over time.

You must recognize there are usually redundancies, particularly with infrastructure. For example, you don’t need two presidents. Take action fairly quickly. Morale will fall in the acquired company if you don’t show that they are loved and accepted by the new company.

If the acquired company won’t move its facility, and you need them, you’ve got to compromise. That’s a difficult subject but the important thing you want is one and one to equal three.

By putting the two companies together, you want the merger to be better than if they were alone. You have to be sensitive to that, use common sense and do the best you can. If you’re insensitive, you may destroy the company.