What type of company makes a good target to be acquired? There are the obvious revenue, strategic, market, product, and R&D considerations. Those are all opportunity plays and are in themselves good reasons, but what about the risk?
How do you decide in advance which companies can be acquired without being destroyed? For that, there is the often overlooked perspective of fragility.
As Nassim Taleb points out in Antifragile:
If everything top-down fragilizes and blocks antifragility and growth, everything bottom-up thrives under the right amount of stress and disorder. The process of discovery (or innovation, or technological progress) itself depends on antifragile tinkering, aggressive risk bearing rather than formal education.
So the big question becomes, “What decides if a company is top-down or bottom-up?” I would argue how they go about the business of process (or the process of business).
There are plenty of well-oiled machines that could at a glance look like low-risk acquisitions but in fact are driven by charismatic leadership and/or heavy-handed management. The trains run on time but the conductor has his hands in everything. These models are unsustainable as segments of a corporation because leadership can’t be separated from functioning of the various parts.
On the other hand, a company that has at its roots the ability to manage even lower-level work in standard ways is actually much more modular. Bottom-up process companies are loosely coupled and familiar with change. Process doesn’t bring rigid structure to bottom-up, it actually brings autonomy that can survive acquisitions and continue to bring value.
The mother ship, too
Having been around long enough to be on both sides of acquisitions, this is something that repeats itself time and time again but rarely gets addressed by the companies on acquisition streaks. And the irony is that process management matters for the acquirer as much as the acquired. When the major functions of a large corporation are governed bottom-up, there’s a ready team to absorb the functions of an acquisition and quickly achieve economies of scale.
The best antifragile acquisition is one where both parties have bottom-up process management that can quickly be blended in the best fashion possible and in the shortest timelines.
What makes this interesting, though, is what it means just as much for companies that aren’t acquiring or being acquired. Modular business, durability, agility, strength throughout a leadership change are all available to bottom-up process companies.
I’d love to hear your comments on this concept.