Size matters – in acquistions

A few months ago the news was full of stories about the Co-Op bank. They acquired acquired Britannia building society, and trouble lay ahead. The newspapers love to report the negative news and the disasters –

There’s an old story about a foreign correspondent for the BBC who was on assignment in the heyday of telegraphy After long silence from the reporter, the BBC wired him to ask: NEWS? The reporter wired back: UNNEWS. The BBC, seeing no point in paying him if he wasn’t working, retorted: UNNEWS, UNJOB.

And this really was a disaster. The co-operative bank has being sold to its creditors in a rescue deal after the regulators insisted that fresh capital was required. The Co-Operative group has lost control of the bank.

So why did this deal go wrong?

Successful acquisitions are not easy to achieve but they all start with the planning & strategy phase, and I think you can point to a failure of strategy, which has led to a failure of execution.

In this case, I think it is clear that the Co-Op bank was just not big enough or strong enough to take on the Britannia. That meant that the leadership were out of their depth, did not have enough understanding of the potential pitfalls and that due diligence was not good enough.

Sweet Spot

In my experience there’s a sweet spot for the size of an acquisition. If your target is too small, it won’t make that much of an impact on your business, and if it’s too big the risk is too great. You need to be looking at businesses that are no more that 30% of your size, and probably more than 10% to make a significant impact.

As always, there are exceptions – if you are busying technology, for example – but in this case

Size does matter

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