Acquiring profitable businesses can create scale overnight. But without successful integration, strong cross-functional leadership and a coherent operating model, buying three successful businesses doesn’t guarantee one successful group.
There is a wonderfully seductive logic to growing a business through acquisition.
Finding customers one at a time is hard work. You have to advertise, sell, quote, negotiate and win them. Then do it all over again for the next one. Or you can buy a competitor and get all of their customers overnight. By the bucketload.
And according to the conventional wisdom around acquisitions, the benefits shouldn’t stop there. If you combine three businesses which each make £2 million profit, the theory says you shouldn’t merely end up with £6 million each year.
You’ve got greater scale, more purchasing power and a bigger presence in the market. There should be opportunities to rationalise management and administration, make better use of assets and perhaps sell more services both to the enlarged customer base and beyond.
Those lovely synergies arrive, and £6 million could become £7 million. Perhaps £8 million.
Champagne all round.
Except sometimes it doesn’t work out like that. Sometimes that £6 million head start becomes a loss. And in an acquisition story I’ve been following, it becomes a very big one.
When three good businesses become one bad one
Imagine three waste businesses operating in broadly the same market and geography. Each turns over somewhere around £25–30 million and each makes more than £2 million net profit.
These aren’t distressed businesses being bought cheaply because somebody thinks they can turn them around. They’re established, profitable businesses which have already demonstrated that their individual business models work.
So somebody buys them and puts them together. Surely that’s a licence to print money?
Because suddenly, instead of three £25 million-ish businesses, you have a group with turnover approaching £80 million. On the most basic arithmetic, you’d expect the £6 million of combined profit you started with to still be there. And if some of those promised synergies materialise, you’d confidently expect rather more.
But then observe something very different happening.
Year One produces a group loss approaching £5 million. You might reasonably expect significant transition and integration costs. But viewed against the £6 million of combined profit those businesses had previously been generating, the swing is arguably closer to £11 million.
Then Year Two arrives. Turnover has fallen to around £60 million and the reported loss is more than £12 million.
Take a moment to think about that.
Within two years, three previously profitable businesses have become a group whose revenue has fallen by roughly a quarter from that initial combined scale and whose reported losses across those two years approach £20 million. And even that only measures the reported losses. It doesn’t attempt to measure the opportunity cost against what those businesses might have earned had they remained independent. And while the market has undoubtedly been difficult, the comparable businesses I’ve examined in the same sector and geography haven’t experienced anything like the same deterioration.
That’s extraordinary.
But, in my line of work, what really interests me isn’t the size of the loss.
It’s where it came from.
Because the group’s owners didn’t start with a broken business. They started with three businesses that worked.
So where did the profitability go?
Yes, I know it’s “more complicated than that”
Before somebody starts typing furiously, of course it is.
Published accounts aren’t an operational post-mortem and businesses don’t move from profit to substantial loss because somebody forgot to carry the one on a spreadsheet.
Acquisitions bring integration costs. Markets change. Financing new investment costs money. Accounting treatments matter. Assets are bought, sold and written down. Contracts change. People leave. Strategies which looked perfectly sensible when they were approved can subsequently prove not to be. And somebody sitting inside the business will always know things that somebody sitting outside it doesn’t.
I accept all of that.
But it doesn’t make the question go away. In fact, it makes the question more interesting.
Because if three profitable businesses go into an acquisition strategy and a substantially loss-making group comes out the other end, I don’t need to pretend that I can identify every cause by sitting at my desk reading a set of accounts.
I’d want to find out though. That’s what turnaround work actually is.
You don’t walk into a struggling business on Monday morning with a laminated list of the ten things that must have gone wrong. You work out what happened, why it happened, which problems are causes and which are merely symptoms, and which of them you can still do something about.
And in this case, one of my first questions would be deceptively simple:
Did they ever actually create one business?
Putting three companies under common ownership doesn’t integrate them. Neither does giving everybody the same email address or, indeed, the same polo shirt.
Each acquired business arrives with its own culture, systems, customers, management structures, working practices and, perhaps most importantly, all the informal ways it has learned to get things done.
Some of those differences need removing. Some need retaining or retuning. And, of course, some of the things the acquired businesses were doing may turn out to be considerably better than whatever Head Office intended to replace them with. Because, let’s not forget, they were all successful businesses.
That’s why integration isn’t simply a matter of imposing a new preferred system from above and declaring the job complete.
If the new leadership isn’t visibly and relentlessly building the new organisation, people will quite naturally retreat into what they know.
“We always used to do it this way.”
“The old company wouldn’t have done that.”
“Our customers expect something different.”
And if nobody is consistently challenging that behaviour and replacing the old loyalties with something new, why would it stop?
So before long you can have departmental silos, geographical silos and legacy-company silos, sometimes all operating – and competing! – at the same time. People remain loyal to the old business because nobody has successfully given them a new one to belong to.
And that matters because those old businesses no longer exist in the world in which they previously succeeded. The acquisition itself changed that world, and the world moves on anyway!
Follow the money, properly
The next place I’d go sounds almost embarrassingly basic.
I’d want to understand the economic logic of what the business is doing.
Every truck movement, every machine, every tonne bought, moved, processed and sold, every customer and every significant piece of capital expenditure needs an economic reason for being there.
That doesn’t mean every individual transaction has to make the same margin. In every business there will be perfectly sensible strategic reasons for accepting a mix of margins across the work. Some customers bring volume which unlocks efficiencies elsewhere. Some assets provide resilience rather than direct revenue. Some investments are made because tomorrow’s business needs them rather than today’s.
But the economic rationale still needs to exist and, crucially, somebody (preferably quite a few somebodies) needs to understand it.
Because scale can disguise some very bad decisions.
A £25 million owner-managed business tends to notice quite quickly if a truck spends its life doing work that doesn’t pay. In an £80 million, multi-site group, that truck will easily disappear as a marginal outlier in a fleet report. An uneconomic customer can hide inside a revenue target. An underperforming asset can become part of a depreciation schedule rather than something somebody gets angry about every morning when they walk past it.
So set your embarrassment aside. Because if an £80 million business is losing £12 million a year, I wouldn’t consider any question too basic to ask.
Quite the opposite.
In fact, I’d go back to ridiculously basic.
And I’d apply exactly the same rigorous thinking to the organisation itself.
Sales can be absolutely delighted with its performance while Operations quietly wonders why on earth it keeps winning problematic work. Operations can improve its own numbers while damaging service delivery. Procurement can proudly save £100,000 buying something cheaper which subsequently costs the business £200,000 in additional revenue somewhere else.
The individual decisions can all look perfectly rational when viewed from inside their own departmental box. And that’s the danger.
Because if departments can win while the business loses, you haven’t really built one company. You’ve just built a collection of competing KPIs.
Which means people won’t be failing through laziness or incompetence. In the absence of strong cross-functional direction, they’ll just be optimising the bit they’re responsible for.
The thing you can’t buy
There is another question I’d be fascinated by.
What actually made those original businesses successful?
A £25 million entrepreneurial business might not look especially sophisticated from the outside. It won’t have a Head of Strategic Transformation let alone a Chief Happiness Officer. Management information will likely involve somebody shouting a question across the office and two graphs from Finance at year end.
But it works.
Quite often it works because there are a handful of extremely capable people who understand the business almost instinctively. And the owner is probably a bit of a character who has been around the industry for 30-odd years and knows what works and what doesn’t. He knows which customers are good for business and which merely look like good business. He knows which jobs make money, which machine earns its keep, when a customer threatening to leave is bluffing and who you ring at 4.45 on a Friday afternoon when something has gone horribly wrong.
A lot of that knowledge may never have been written down because it didn’t need to be.
The business was small enough for knowledge, experience, instinct, earned relationships and, importantly, control to substitute for formal organisational systems.
Then somebody acquires it.
You can buy the trucks, plant, customer contracts and premises. TUPE will hand over the people. But what you don’t automatically acquire is a scalable version of everything that made the business successful.
And worse, unless you’re very careful, the integration process can actually dismantle some of it.
Why scale changes the leadership challenge
That’s where I think the arithmetic of acquisition becomes perilously deceptive.
Three successful £25 million businesses do not necessarily make one successful £75 million business because a £75 million organisation isn’t simply a £25 million organisation multiplied by three.
It’s an entirely different animal.
The post-merger organisation needs things the original businesses will never have needed, or certainly not at the same level. Proper business change and integration capability. Group-wide capital allocation. Fast, pertinent management information capable of showing where value is both being created and destroyed. A strategy to deliver coherent pricing. Procurement. Fleet strategy. Shared infrastructure. Organisational design.
Most importantly, it needs people capable of looking across all of those things at once.
That is a very different management challenge from successfully running one entrepreneurial business where an experienced owner can see most of what matters from his office window.
But none of this means acquisition is a bad growth strategy.
Buying a good business can be a far faster and more effective way to expand than trying to build the same revenue organically. The logic behind consolidation can be entirely sound.
But buying scale and managing scale are two very different capabilities.
Buying businesses creates scale on paper. But it only creates value when those businesses are turned into a coherent operating model[1].
So if somebody put three previously profitable businesses, the new enlarged group, declining revenue and substantial losses in front of me, I wouldn’t start by deciding who was to blame.
I’d want to understand the journey between those two points.
What changed after acquisition? What was lost? What was added? Which assumptions behind the original investment case proved correct and which didn’t? Where did the expected synergies materialise and where did diseconomies appear instead? Which problems came from the market and which were created within the business? Which decisions made perfect sense at the time but don’t anymore?
So, for me, all these questions eventually lead back to one:
Did the group scale the business faster than it scaled the leadership capability required to run it?
Because buying your way to profitability is never guaranteed.
The bigger business needs to be built, not just bought.
[1] McKinsey & Company, How Private Equity Is Using M&A Integrations to Overcome Headwinds, 8 May 2026.
Post Script
Knowing what’s wrong is less than half the battle.
Most struggling businesses aren’t short of people who can identify problems. The difficult bit is deciding what needs to change, what needs to change first, what can realistically be changed, and then making it happen while the business continues operating around you.
That’s where turnaround stops being diagnosis and starts requiring tactical strategising, relentless prioritisation and, frankly, occasionally insane levels of drive.
Gerald Price is a business turnaround specialist and interim MD, with particular expertise in the waste and recycling sector. He works with business owners, boards and investors when businesses need fixing, changing or simply making better.
His work typically involves getting inside a business, understanding what’s really happening rather than what everyone thinks is happening, and turning that diagnosis into practical change.
More at gpcp.co.uk and https://www.linkedin.com/in/geraldprice/
