M&A is short for Mergers and Acquisitions, i.e. buying other companies and potentially combining them with your existing business. Although Visma by no means is a financial investor, M&A is an important part of our expansive growth strategy.
Visma employs a strategy of quasi organic growth, meaning that our tremendous growth the last couple of years has been fuelled by a combination of growing our sales from existing business and, at the same time, acquiring new companies. As a result, Visma has bought more than 30 companies the past couple of years. Why have we chosen to pursue such a strategy, and how can this strategy successfully add value to the company? We asked M&A Manager and former Management Trainee Sindre Talleraas Holen to explain.
Fresh out of university, aged 23, Sindre started his career by joining Visma’s Management Trainee Program in 2009. Keen on a real challenge he put himself forward, asking for a chance to work on a prospective stock exchange listing of the company. This might not be your average trainee placement, but in Visma we are not afraid of believing in young talents.
Soon Sindre found himself negotiating with potential investors. As it turned out, Visma ended up negotiating a PE ownership structure rather than a listing at the stock exchange. The new owners wanted growth, and by the time he finished the trainee program, Sindre had become Visma’s new M&A manager.
Being 23 years old and going into negotiations with CEOs and Investment Bankers was a surreal experience, Sindre explains. You really do have to rise to the challenge. The learning curve is steep, but it is an incredible thrill to get the chance to challenge yourself and excel at tasks you would have to wait half your career to even get a go at in other organizations.
Even though Visma is in the business of producing software and services and not an investment fund or the like, the many mergers and acquisitions are opening up tremendous opportunities for young professionals. Often management trainees get to work closely on the integration process of newly acquired companies. As an example, current trainee Magne Klonteig Nielsen is working on the merger of Visma Collector and Creno as one of his trainee projects.
The hunt for synergies
When learning about M&A, you are bound to hear the word synergies thrown around quite a bit. Synergies, it might seem at times, are the M&A equivalent of the promised pot of gold at the end of the rainbow: Often sought for, but rarely observed. In short, synergies arise from the thought that the value of two businesses combined is greater than sum of the two when operating separately. For instance, you might be able to sell more products to the customers of each business (revenue synergies), or maybe save some of your costs, for instance pay less in rent if both businesses are operating under the same roof (cost synergies).
When acquiring a company, you often have to pay a premium on top of the value of all the tangible assets belonging to the firm. The synergies are supposed to make such a premium worth paying. Unlike the pot of gold, synergies are most real. They do exist, but hard to measure and even harder to actually achieve.
The Visma Way
After several years of buying companies, Visma has gained some experience in avoiding potential M&A pitfalls. Some of the key success factors for our M&A activity have been to ensure that the firms we acquire fit well with Visma’s existing business. The rationale behind the acquisition must be clear. Sometimes we are looking to acquire an innovative capability or technology, other times it may be a customer base or a product complementary to our existing portfolio.
Price is key! It is easy to get blinded by a candidate that is a solid fit with our business. However, no matter how perfect the candidate may seem, the price needs to be right. If not, you will easily find yourself in a situation where the deal ends up destroying rather than creating value. Take Facebook’s acquisition of WhatsApp for $ 19 billion. Even though the two companies are a great fit, and the acquisition itself made sense from a strategic standpoint, it is likely going to be hard for Facebook to realize enough synergies to defend such an astronomical price.
At Visma we generally do not engage in turnaround operations where we buy a poorly run company and try to fix it. Rather, we prefer well run companies that fit with our strategy. It is all about finding that sweet spot where a potential target makes sense strategically and can be obtained at the right price. Once such potential candidates are found, we develop an integration plan for adding the newly acquired company to Visma. We often take a soft-integration approach where we gradually integrate new companies with Visma. As for a marriage, some due diligence in terms of expectations about the future relationship is important. Being transparent is a key success factor in our M&A activity.
Things take time, Sindre explains. Even though we have good estimates regarding how long integration processes will take based on our previous experience, even the smoothest integration processes often take more time than expected.
At the end of the day, there is no “one size fits all” recipe for acquiring a new company. That is what I love about my job: I get to follow the M&A processes from A to Z, using a wide set of skills ranging from legal knowledge to strategic planning. Of course, you also need some finance skills. Although, I think the last time I did a DCF calculation was during my Masters.
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