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When it comes to M&A, what is Parenting Advantage?

In our last newsletter, we outlined how different buyers structure their ownership and how long they keep businesses they buy.


Today, we going to talk about an idea called Parenting Advantage. Put simply Parenting Advantage describes how buyers plan to influence the businesses they own. And buyers who purchase many businesses over time, the so-called serial acquirers, sustain their success by being very clear about how they influence their acquired businesses. In other words, they are very clear about the Parenting Advantage they bring to the table.


Why is a buyer’s Parenting Advantage important for sellers to know about?


Again it’s a simple idea. When selling your business, you should be able to demonstrate how a buyer’s method of influencing what they buy will work well for your business.


Of course some buyers have a hands-off approach (remember the Federators) and some have a hands-on approach (that’s the Integrators), so when selling your business, you and your advisor should give considerable thought to which of these approaches might suit your business better or perhaps even both approaches may work well.


At Presser & Co, we have spent considerable time putting this idea of Parenting Advantage into practice for many of our clients. Each industry sector often has multiple companies wanting to acquire into (or within) that sector, but each buyer not only owns differently (remember Integrators and Federators) but they also influence internal company functions differently. For example, some sector specific buyers want to continue or increase R&D spend of businesses they acquire, but others pull back or even stop R&D spend to focus on cash dividends.


So as a seller you might need to modify and accentuate your businesses strengths that match the target buyer’s method of influencing ownership. And don’t dwell on those aspects of your business that don’t match the buyer’s influencing preferences.


You should expect to have buyers with vastly differing ideas about the Parenting Advantage they bring to acquired businesses, so you too should be prepared to modify your ‘pitch’ to them. Work with your advisor to find out, and then emphasise, in all your presentations and discussions, the strengths of your business that match individual buyer’s preferred method of influencing businesses. If you’d like to read more about Parenting Advantage in M&A, download Campbell, Goold and Alexander’s 1995 Harvard Business Review article here (https://hbr.org/1995/03/corporate-strategy-the-quest-for-parenting-advantage) which first introduced the idea.


And finally, lyricist Johnny Mercer and singers Bing Crosby and the Andrews Sisters gave some good advice to sellers way back in 1944 in the words of their hit song Accentuate the Positive. You can hear it here. https://www.youtube.com/watch?v=x3Hoxr09kss

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