The Requirements of a Successful Acquisition
A year on from its acquisition of UK based professional battery manufacturer Accutronics, global battery manufacturer Ultralife Corporation is now reflecting on the key strategies that allowed the successful merger to take place. Here, Philip A. Fain, the company’s CFO and Treasurer, looks at what makes a successful acquisition.
When global businesses acquire other companies, they are all seeking something, whether it’s supplementing organic growth by diversifying into different markets or geographies, increasing product portfolios or obtaining needed expertise and skilled resources. No matter what they are looking for, it is vital that they go into an acquisition with disciplined criteria and realistic expectations of what can be achieved, along with a comprehensive action plan of what will occur immediately after the acquisition is completed.
Ultralife Corporation has a strategic plan for organic growth which is supplemented through acquisitions. It’s vital that companies have strategic and financial criteria to vet potential acquisitions, before commencing the search process. For Ultralife, the company’s priorities lie in the capacity for future growth, which presents itself in new markets and geographies, new products and expertise. This allows for expediting growth in markets that we would struggle to penetrate, using the expertise and relationships of the acquired company to enhance our offering in those markets.
Rather than risk any threat to the company’s finances, businesses should consider the financial viability of the company they would like to acquire. Accutronics met Ultralife’s conditions of being profitable and providing incremental returns commencing in year one that minimised the risk to Ultralife’s business.
Choosing the right fit
Although it may be tempting for companies to acquire businesses that make similar products to them across the globe, this does not always result in increased market share. While Ultralife is focused primarily on commercial and government and defence products, Accutronics has a strong market share in the medical sector, with very little customer overlap. This provides a strategic opportunity for two-way synergies – Ultralife selling Accutronics products into their established customer base and Accutronics selling Ultralife products to their customers.
By choosing to acquire businesses from different sectors in the same market, companies are able to reach a bigger spread in their market. For Ultralife, having a European base also enables the company to reach the European government and defence sector, using Accutronics’ expertise in batteries as a whole.
Companies should also consider the future of their industry. The projected growth of the portable medical device market means that the combined company’s expertise in reliable and safe rechargeable batteries enhances the opportunity for profitable organic growth.
Sharing responsibility for the future
While many acquisitions conjure thoughts of a giant company taking over another, it is important to remember that acquisitions are mutually beneficial. For companies based in the US, having a European base improves access to customers, as well as making distribution more efficient.
With increased restrictions on transporting lithium-ion batteries, in force since April 1, 2016, having manufacturing on both sides of the Atlantic means that the two companies can help ensure compliance in the most cost effective and efficient manner whilst being prepared for any further restrictions
Acquisitions are a key part of many company’s strategic plans and seeking new opportunities in current and new markets can help them grow. However, two successful businesses may not necessarily fit well together. It is vital that business leaders look at the fit of their two companies and how they plan to grow together, rather than focusing on the growth of the parent company, to ensure a successful and profitable acquisition for both parties.