Tuck-in Acquisitions Success Patterns and Anti-Patterns

I have been involved as either an entrepreneur or investor in north of 20 tuck-in acquisitions. Some were transformative in terms of talent, Total Addressable Market, key product capabilities, key customer logos, or revenue growth (or all five).  Others have been modest to less than worth the deal.  Successful tuck-ins require blood, sweat and tears to work.  A former executive colleague at a company were we did seven acquisitions said "We did seven acquisitions none of them right".  Yet, two of the seven propelled the company to a very successful IPO.

Some of my criteria and patterns for success are:
  • strategic or financial fit 
    • Strategic fit meaning directly on the Product Roadmap and not only accelerates the product development timeline but optimally the acquisition of reference customers
    • Financial fit would mean very accretive without revenue synergies (for example, buying a book of business that could be converted to your platform right away)
  • cultural fit
    • Companies have distinct cultures and you don't want to get a Frankenstein culture which frequently occurs in mergers of equals
    • A desire and good attitude by the executives to make 1 + 1 greater than 2 is needed to smooth the inevitable bumps and related frustrations of a business combination
  • key talent is going to continue forward (might be a subset of talent - executive talent, R&D talent, or sales talent)
  • the tuck-in sells to the same customers and in fact optimally the same titles and functions in the organization as the acquirer
  • organically sourced with hopefully preexisting knowledge of each other
  • the acquirer has talked with multiple competitors of the tuck-in
Some red-flags and anti-patterns are:
  • acquisitions based upon a high-level theme or strategy vs. on the ground product adjacency
  • acquisitions of equals
  • valuation based upon huge revenue synergies
  • banker lead processes with limited exposure to tuck-in management
  • common investor driving the combination
In all acquisitions, it's critical to know who owns the diligence and ultimately the business outcomes.  Having a day 1, 30-day, 90-day, 180-day integration plan including customer, employee, and investor communications is very important.

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