The Report Answers a Different Question

A company is looking to buy its way into an adjacent market and hires a strategy firm to assess it. The firm comes back with the addressable market (TAM/SAM) assessed, the competitive structure mapped, and a clear answer on what it would take to win. Every claim is sourced. The recommendation is to move.

A director who has run a business in that market asks who inside the company would operate the acquired business after close. It's a fair question, the CEO says, and something the team will sort out once the deal is approved. Nobody follows up, and the recommendation moves forward unchanged.

Two separate questions were on the table that day: whether this market is worth entering, and whether this company can run the business it would be buying. The board paid for an answer to the first and is treating it as an answer to both.

Why the objection loses

On one side of the table is a document that took months to produce, with sourced findings and a named methodology. On the other is a director recalling a company he worked at twelve years ago. He has nothing to hand the board except his own recollection, and a board decides by weighing evidence.

So the first time he raises it, the concern gets politely set aside. Someone calls it a good point, someone else says it will be handled during planning, and the meeting moves to the next item. Nothing about the recommendation changes. If he wants the question answered, he has to bring it back after the room has already settled, which is what turns a reasonable concern into something that looks like an attempt to block the deal.

Why one side has no evidence

The firm was hired to assess the market. That is what the engagement letter asked for. Nobody ordered an assessment of whether this company could run the business it was buying, so no such assessment exists.

A board works through a thorough document, finds no capability concerns, and concludes there are none. A competitor adding capacity or prices already falling in the market are risks the firm was hired to look for, so they show up as flagged line items the board can see and weigh. A question outside the scope doesn't show up in the report.

When I bring in an outside market consultant on an acquisition, the firm asks before starting whether the job is to justify the deal or to criticize it. I tell them I want a neutral read. Someone decides what the firm goes looking for before any work begins, and the board reads the conclusion without ever seeing that instruction.

I work both sides of this. Some of my engagements produce the outside report a board leans on, and I have also been brought in to support a recommendation that was already made. Boards should use outside firms, and the market and competitive analyses in these engagements are usually better sourced than anything else the board will see. The problem is what the board believes it is reading.

What the capability assessment covers

The market study asks whether the opportunity is worth pursuing. The capability assessment asks what makes this company perform the way it does now, and whether those things still hold once it owns the new business.

It comes down to three questions, none of which the market study had any reason to ask.

• What does the acquired business require operationally that this company has never done, and who runs it after close while the core business still needs attention?
• Does the existing sales force sell this way, to this buyer, on these terms?
• If what makes the target work is a channel, a service organization, or a set of customer relationships, what is the plan to keep those in place after the deal closes?

The third question is where I have seen a deal go wrong. At a Fortune 500 test equipment maker where I led corporate development, we sold directly to our customers; but a company we acquired sold through integrators who held the customer relationships we were paying for. Nurturing a channel wasn't a skill we had, and we knew it before close. We treated it as something that would sort itself out afterward, so nobody was ever put in charge of building it, and the organization spent years working through what that cost.

The better sequence

Order the capability work, including a SWOT review of both the target and the acquirer, at the same time as the market study. Both come back together before anyone in the room has a position to defend, so the board can weigh one set of findings against the other. Make sure the executive summary in the board package includes the negative findings along with the positive ones. The added cost is a fraction of the market study, and nowhere close to the price of the deal.

Raised after the recommendation is already on the table, the same question sounds like an objection to a conclusion the board has accepted. Those don't usually get overturned, and the deals that do get stopped that late are usually reacting to something that has already gone wrong somewhere else.