Executive Summary
Roland Lessard’s episode on “Think Like an Owner” from February 2024 reinforces an oft-repeated point: start narrow. Not necessarily small. But narrow. Know the specific reasons for your thesis, and what you’ll do to add value. This is the only way to make the first integration work, paving the way for more.
Lessard was co-CEO of Morningside, a B2B language services company specializing in IP, patent, legal and other services. They served 4,000 customers across 55 countries and eventually sold to Questel. Lessard is now an operating partner at search fund investor Pacific Lake.
Key takeaways
Every acquisition should answer ‘why’. Lessard estimates that 70% of acquisitions fail to achieve their stated goals because the buyer has not clearly defined what the combined entity should be. Be specific about strategic value, operating levers, and expected financial outcome
Buy across before buying up. Go horizontal for your first deal. A close competitor or peer. Don’t move into adjacent verticals before nailing the customers, pricing, cost structure, tech stack and sales motions. Get used to the acquisition and integration motions with a like for like company before attempting a broader model expansion
Take your time. Lessard and his partner waited nearly two years after buying Morningside before completing an add-on. Every situation is different but they wanted good systems in place first
Actionable insights:
12 month integration plan. Describe the combined company’s operating and financial state roughly 12 months after closing. Do not assume anything good beyond that timeframe when you underwrite a deal
Separately track current and run-rate synergies. Structural efficiencies from synergies and operating improvements should be tracked. But you may spend or invest in the business against a backdrop of fundamental improvement. Track current vs run-rate so you know where you really stand
Craft and refine a written deal book. Acquisition thesis, financial targets, future org chart, headcount projections, key talent identification, systems and tech stack changes, restructuring costs, financial milestones and expected returns.
Be prepared to walk away. A bad deal is worse than no deal. A bad deal distracts and erodes the benefit of compounding. Know which 1-2 factors mean you cut bait and move on
The Big Idea
Begin with the end in mind. Know why you’re buying, how you’ll add value, and what constitutes success. Take time to do this. Then grow.
“Think Like An Owner” from February 2024. Find the full episode:
https://podcasts.apple.com/us/podcast/think-like-an-owner/id1445929750?i=1000644340236
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Until next time,
Compounder
