Recently, I was visiting with a colleague from my days at Waste Management Inc. (WM) reminiscing about a major industry roll-up of which we were a part. Waste Management had decided to create value for shareholders by acquiring and consolidating companies in the very fragmented pest control and lawn care business, creating new national players in the industry.
We were part of the acquisition team – several of us having been owners of acquired companies, plus a long-time WM executive. In two years, our team directed the acquisition and consolidation of over 150 companies, resulting in a roll-up of about $200 million in annual home services revenue. The entire consolidation was eventually sold to ServiceMaster, owner of Terminix. Fast forward to current days, when many of the old problems with M&A are the same, but there’s a new twist. In the world of Private Equity, today’s sky-high valuations require making even smarter decisions when buying a company. Solid due diligence on ALL aspects of the business and a fast start on value creation are needed to reach the end-point of a strong ROI for the investors at exit.
My colleague and I were recounting our M&A successes and messes considering the long-accepted axiom in the corporate world that “most acquisitions fail to achieve their objective.” A Harvard Business Review article states, “…study after study puts the failure rate of (corporate) mergers and acquisitions somewhere between 70% and 90%.” During the Waste Management roll-up days, we did much, much better. As you might imagine, we learned a lot about acquiring, transitioning and consolidating businesses during those two years which I’ll summarize here:
When taking all the above into consideration, one may be correct in observing that many PE firms skimp on due diligence. Yet, firms are increasingly taking a more comprehensive approach in light of higher up-front valuations and the pressure to increase multiples at exit. If you’d like to explore how a Chief Outsider Fractional CMO can support your due diligence, let’s have a discussion.