Medical Aesthetics Acquisition: Lessons To Remember From Those Who Have Sailed Similar Waters.

Medical Aesthetics Acquisition Lessons To Remember.

"Coming together is a beginning. Keeping together is progress. Working together is success." -Henry Ford

Given the interest in medical aesthetics from private equity, venture capitalists, angel investors, and the like, it is expected that mergers and acquisitions (M&A) will affect much of the workforce in the medical aesthetics industry over the next 5 to 10 years.

The impact of M&A on employees is not as simple as their company being acquired or acquiring another. It's also not as simple as the "numbers" working or not. In most cases more time is spent making sure the numbers work than there is time spent making sure that there is an effective plan in place for combining organizations and ensuring a successful merger.

The effect of an acquisition and subsequent merger is far reaching and deep. If the merger is not handled well it can lead to a failed acquisition, unmet earnings projections, and a long-lasting negative impact to the overall morale within the entire organization, not just those acquired. The negative effects of a poorly handled merger can last for years and result in lost productivity and loss of talent. Handled well, organizational performance can surpass projections and lead to unprecedented growth.

What We Know

It is estimated that more than half of all mergers and acquisitions fail to generate anticipated synergies or meet initial expectations. In fact, research shows that most mergers fail completely, destroy shareholder value, and cost companies millions if not billions of dollars. When you dig deeper you find that the root cause of the failure to combine organizations effectively could be as simple (and as complex) as poor financial analysis, poor preparation, fear, and a failure to fully appreciate the impact of culture on an organization.

Finances

In his 2020 book The Value Killers, Nuno Fernandes shares one of the overriding take-aways from his experience and research. That is, “if the acquiring company pays too much for the target, it will destroy value, even if all of the projected synergies materialize.” This seems like common sense. However, when you look at some of the multiples being paid in the aesthetics industry, one must wonder if it is common sense or emotion driving these deals.

When you look at the high M&A failure rate you have to wonder if overpayment is a primary causal factor. When looking to add value through M&A the focus should not be on what you could possibly flip the acquired for in 3-5 years, but most importantly what you can buy it for today. It is the buy that makes the value, not the sell.

Culture

M&A prep requires the acquiring company to do its due diligence when it comes to understanding the cultural differences between the acquiring and the acquired. Organizational culture refers to the behaviors that are common within an organization and the meaning placed upon those behaviors by the organization's workforce. As one can imagine, it takes time to understand culture. Knowing how and why an organization does what it does requires investigation, observation, and understanding. The little things can sometimes be the big things that derail mergers. Getting the cultures to mesh is complex and requires the ultimate respect from the acquiring company.

Merging businesses is similar in complexity to blending a family. Do an effective job at understanding and appreciating the personalities and why each family does what it does, and your odds of blending successfully increase. Do it poorly and life can be tough for everyone involved for years to come and result in resentment, hard feelings, and a lack of respect toward those who were responsible for doing what they thought was a good thing.

Fear

Fear can destroy promising mergers just as much as poor financial analysis and cultural appreciation. Fear of what is coming because of the acquisition can paralyze not only the acquired company, but also the one acquiring. Those being acquired may fear job loss, benefits loss, loss of authority, loss of freedom, and loss of autonomy. The same can be true within the organization that is conducting the acquisition. Employees in the acquiring company may fear the loss of their job, loss of their authority or loss of potential for advancement. While not all fear can be alleviated, effective communication and consistent action can many times neutralize the most paralyzing fear.

By communicating as early and as often as possible with those being acquired, the acquiring organization demonstrates empathy and can make huge strides toward alleviating the natural uneasiness and fear that comes from an acquisition. Communication should include the reason for the acquisition, the vision and mission of the acquiring organization, the chain of command, compensation and benefits changes, the plan for resizing and reorganizing, and the system for sharing ideas. By communicating early and often, which requires saying the same multiple times, M&A success increases exponentially and turnover and morale can be managed effectively.

R-E-S-P-E-C-T

Finally, just as important as communication, due diligence, and fear alleviation, a sincere demonstration of respect by the acquiring company toward all employees, including their own, goes a long way toward helping everyone feel comfortable with the new organization and good about the merger.

Randy Stepp is a Principal with Renaissance Leadership Group. RLG is a full-service medical aesthetics practice and business development firm committed to helping owners achieve long-lasting success and sustainability.

Visit Renaissance Leadership Group at www.renaissanceleadershipgroup.com to learn more.