An Aggressive Move in Tough Times
The construction industry is facing headwinds. Rising material costs, labor shortages, and adapting to work style reforms. For small and medium-sized specialized contractors, this is truly an era of survival.
Amidst this, Kunii Kogyo, a rebar construction and processing company, adopted a strategy of “growth through M&A with peers.” At first glance, this seems like going on the offensive when they should be on the defensive.
However, this decision contains the essence of “reversible management.” It’s not just an expansion strategy, but a clever move designed with reversibility in mind.
The “Returnable” Structure of Peer M&A
When many business owners hear “M&A,” they think of it as a “big gamble.” The image is strong: after acquisition, synergies don’t materialize as expected, and withdrawal is difficult.
But peer M&A has a different aspect. Especially in specialized contracting, acquiring a company in the same industry leaves more “room to return” compared to entering a different industry.
Why? Because the technology, personnel, and business partners of the acquired company are directly connected to your core business. Even if integration after the acquisition doesn’t go well, you still have options: return the company to an independent state, or sell it to another operator.
In Kunii Kogyo’s case, the M&A was in an area adjacent to their core rebar construction business. The more the acquired company’s business overlaps with your own, the wider your options become when considering withdrawal.
A Design That’s Not “Buy and Done”
The key here is not to treat M&A as “buy and done.” Many failures occur when integration is rushed immediately after acquisition, making it impossible to return to the original state.
System integration, unifying HR systems, changing brands. If you push all of these at once, it becomes extremely difficult to reverse course.
To maintain reversibility, there is a method of operating the acquired company “as a separate entity” for a certain period after the acquisition. Start with a business alliance and gradually increase the degree of integration. This way, even if you decide that the expected synergies aren’t materializing, it’s easier to return to the original state.
The Paradox of Deciding Exit Conditions First
The core of “reversible management” is not assuming success. Rather, it’s deciding in advance how far back you’ll go if you fail.
The same idea applies to M&A like Kunii Kogyo’s. Before deciding on an acquisition, you should clarify the following three exit conditions:
1. Timing for evaluating integration progress (e.g., after six months, one year)
2. Criteria for withdrawal (e.g., achievement rate of sales targets, employee retention rate)
3. Method of handling after withdrawal (e.g., business transfer, return to original structure)
By deciding these in advance, you can make calm decisions without being swayed by emotions. Many business owners feel psychological resistance to letting go of something they’ve invested in. However, if you set rules beforehand, it becomes easier to overcome that resistance.
The True Meaning of “Expand in Tough Times”
Behind Kunii Kogyo’s “expansion in tough times” strategy is the wave of industry consolidation. As more peers consider closing down due to labor shortages, M&A offers benefits to both sellers and buyers.
For sellers, it protects employee jobs and fulfills responsibilities to business partners. For buyers, it allows them to acquire talent and technology that contribute to their own growth. Because both sides benefit, M&A at this timing makes sense.
However, just because it’s an expansion strategy doesn’t mean you need to pursue scale at all costs. Carefully assess the size and business content of the company you’re acquiring, and only choose those with high compatibility with your own. This judgment is what expands your “room to return” later on.
Reversibility in M&A is Essential for SMEs
Unlike M&A for large corporations, SMEs have less leeway in terms of both finances and personnel. A single failure can risk the entire company.
That’s precisely why SME owners should view M&A as an “experiment.” Instead of expecting big results from the start, start small, test, and expand while observing the results.
To do this, it’s important to design the post-acquisition integration process in stages, with decision points at each stage to “return or proceed.”
For example, start with a business alliance and consider a merger after six months. Or, take over only part of the business and leave the rest with the seller. These flexible approaches increase reversibility.
The Peace of Mind from “Reversible Management”
As a business owner, the biggest reason for hesitating to pursue M&A is the anxiety of “what if it fails?” You can’t completely eliminate this anxiety, but you can reduce it by designing reversibility.
If you clearly define a “line you can return to even in the worst case,” the psychological hurdle drops significantly. And that peace of mind leads to better negotiations and calmer business decisions.
Kunii Kogyo’s case teaches us the importance of maintaining an aggressive stance while drawing a line you can return to, precisely because times are tough.
Summary: The Balance Between Expansion and Withdrawal
Growth through peer M&A may seem like an “irreversible” decision at first glance. However, it’s actually an area where reversibility is easier to design.
The key points are the following three:
– Progress post-acquisition integration in stages, with evaluation periods at each stage
– Decide exit conditions in advance, and have criteria that aren’t swayed by emotions
– Carefully assess compatibility with the acquisition target, and avoid forced expansion
In tough times, instead of going on the defensive, attack wisely. Why not consider reversible M&A as a tool for that?
Where is your company’s “line you can return to”? We recommend taking a calm moment to think about it.
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