Build, Buy, Or Partner? A CFO Shares Tips On The Decision Process

Arlen Shenkman

Maintaining profitable growth is one the top priorities for CFOs. As I explored in my last blog, there are many tools CFOs can employ to effectively support corporate objectives. Your thought process when deciding which tool to pursue directly influences the outcome. Any gaps in your decision process could expose your company to undue risk. In this blog I’ll share insight into the decision process that has enabled me to lead more than 35 acquisitions and strategic investments at SAP.

Identify the most direct path

When I’m considering which tool to employ, my first and most fundamental question is, “Should we build it, buy it, or partner?”

Partnering can be one of the quickest and simplest ways to grow revenue and limit costs. At SAP, we would pursue a partnership when we identify a market trend or opportunity and identify a partner offering that is beyond or adjacent to our core competencies. If the prospective partner and its offerings are complementary to our business, our cultures mesh, and we can negotiate equitable terms, then partnering can be a win-win for all involved. When is this the best avenue for growth?

Partnerships work best when the business opportunity is tangential to your core business. It ideally complements your offerings without competing with them. It accelerates time to market, and it costs less than building or buying. It’s a viable option when you can bring scale, sales experience, and product expertise to support a joint sales effort.

Consider when to build and when to buy

If the business opportunity is close to your core, then building or buying may be the better way to grow. When deciding whether to build, buy, or partner, I begin by asking:

  • Do we have the expertise to build what’s needed to grow the business?
  • How long will it take?
  • How much will it cost?
  • Do we understand the requirements of the marketplace?

If we have the expertise, time, resources, and market knowledge required, then we’ll build it ourselves. But if these factors don’t properly align, we turn to acquisition. Acquisitions don’t always work, so here, the decision process is critical. As CFO, you may have come to the right conclusion to buy, but you also know that the marketplace it littered by bad acquisitions and buying the wrong business can cause a host of unintended consequences.

Prepare a thorough business case

When SAP builds a business case for an acquisition, we do extensive due diligence on the industry, the participants, and potential targets. We develop a detailed business case that spells out our assumptions, identifies how we’ll operate and integrate the company, determines how the company’s products will interoperate with and complement ours, and defines the go-to-market strategy. So when we ultimately have made our decision to acquire, we can move quickly.

We stress test every hypothesis around the deal and confer with internal and external experts. And we are sure to conduct an open and collaborative process with key stakeholders within our business, and listen to everyone’s input. But at some point, the decision to pursue an acquisition is often a judgment call on the part of our executive board.

Place a high value on synergy

I’ve found that people tend to focus too much on what they pay for an acquisition and not enough on how much value they derive. In many cases, the synergistic value of a company has a greater impact on economic return than the purchase price.

At SAP, when we were considering SuccessFactors, we were told that there were better companies to acquire. At the time, it was one of the most expensive acquisitions in the market. (Today, cloud companies trade at much larger multiples.) We listened, asked questions, and understood their perspective. Then we tried to make the best decision based on the information we had. Many speculated that we paid too much – but we’ve done incredibly well with the acquisition.

Address every possible issue

With any decision to pursue growth through one of these strategies, the key is to understand your business and then be incredibly detailed and focused on all the particulars involved.

I welcome your feedback. Please share your views with me about this topic in the comments below.

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Arlen Shenkman

About Arlen Shenkman

Arlen Shenkman is the CFO for SAP North America, overseeing the financial activities of Canada and the United States, including forecasting and planning, driving efficiencies, and ensuring the overall financial health of the region.