More Hands Off Approach Post-Acquisition

March 12, 2020

by a searcher from IESE Business School in San Clemente, CA, USA

I'm wondering if any searchers or investors have had any success with companies that already have a great management team in place and might only require monthly visits post-acquisition? We are currently self-funded but considering the possibility of acquiring 2-4 companies that wouldn't require full-time presence on our part. Thanks in advance for any feedback on this.

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Reply by a searcher
from University of Pennsylvania in Chicago, IL, USA

I think what you are proposing can be a big advantage rather than a disadvantage. If you can acquire a company with good management that doesn't require a lot of steering/care&feeding/whatever - that is ideal, because then you can use C-level brainpower on strategic plans. You have to ensure though that after closing you build the relationships and can learn the business well enough to have effective governance. My simple test is this question: "Do I have confidence that bad news will be communicated to me as it arises?" and a related one, is "without relying on management, do I have independent information sources that will alert me to issues (w/ customer service, whatever aspect, etc.)?" Both are about trust, relationships, and self-reliance. Software also helps a lot. Getting a business unit to run like a machine though should always be the goal. Good luck with the project!

Reply by a searcher
from Stanford University in Salt Lake City, UT, USA

I considered this approach for smaller deals (CF of $200K to $600K) but concluded it was not realistic (for many of the reasons Matthew stated). It will be incredibly challenging to know the business, employees, and customers enough to be an effective leader if you aren't there day-in-day-out. I've heard others use an analogy that it is a bit like putting your car in cruise control on the highway and then hopping in the backseat for a nap. Sure, the car may keep driving forward, but it will not end well.

That said, I do think it is a viable strategy to buy a relatively simple business, run it full time for a while (e.g., 1 to 3 years) and then gradually hand off your leadership responsibilities and step away. I just don't think you can skip over that period of fully immersing yourself in the business.

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