Founder's Blog: The Chemistry of Acquisitions

Business acquisition is fertile soil for analogies. An obligatory one is chemistry. In any merger and acquisition, there's an undeniable bonding process at play, where two dissimilar elements come together to form something new. In most cases, the goal is to form something stronger than either part alone. However, the resulting composite is always an unknown element, with equally unknown characteristics and behaviors. Sometimes the bond is more brittle than the constituent parts ever were. The resulting element might be heavier, denser than initially thought.

There are different types of chemical bonds. Ionic, covalent, metallic, and a few others. Different bonds have different strengths, depending on how the elements participate in the chemistry, what they're willing to share, what they give up, what they hold onto. These arrangements determine whether you get rock salt or a diamond.

However, you don’t always need an actual bond for great chemistry. In semiconductors, the behavior is defined by adding condiments to two sides of the same crystal. The magic happens at the boundary between these differently seasoned halves. The behavior is a property of the interface, not the materials.

Acquisition theory fixates on the cold metrics such as revenue, headcount, and market share. However, there's more than what meets the eye.

So, let’s increase the scale to analyze acquisitions with analogies our eyes can see, and now think of textiles. A great garment is rarely made of one single material. Wool gives structure and warmth but can be coarse; a thread of elastane changes how it drapes, breathes, and moves. The combination works despite the difference in the fibers, because their differences are arranged with a strong design objective. Combine them carelessly, and all you get is something that tears at the seams. Combine them well, and you get something neither fiber could be alone.

Every organization is a fabric. A weave. Of gray matter (the people and what they know), systems (the tools, processes, and infrastructure that carry the work), and choices (the decisions, past and ongoing, that have shaped the journey). These threads are interlaced before any deal is on the table. You cannot pull on one without moving the others. A merger, then, is more than the bonding of two elements. A successful acquisition weaves two or more existing fabrics into one consistent garment, where the alchemy resides at the junction, in the seams, in the places where the weaves meet.

This is why we called our technical due dilligence method Fabric™.

The way Kano performs diligence is about understanding how the parts will join. Whether the fabrics can sustain the forces that may rip them apart. About identifying what those forces are. Whether the seasoning on one side may create a risky imbalance in the emerging behavior. Whether the deal invites something stronger than its parts, or more brittle than either.