Over the past few months, several of my family business clients have pursued something they have never done before – buying a company to integrate into theirs. This transaction comes with mixed feelings of excitement and uncertainty, which is understandable. Acquiring a business can impact your company’s growth dramatically – and quickly. But there are numerous ways that deal can go sideways, which naturally leads to some trepidation.
Based on the deals I have been a part of on behalf of my clients, here are a few key takeaways I have observed that will help set you up for success.
First, as the buyer, you should be comfortable that the target will integrate well into your existing operations. Acquiring a business that does something similar to what you already do will make evaluating the target company’s operations easier, since your experience provides certain expectations as to where things should fall. For instance, how do their profit margins compare with what you would expect? How do employee salaries and benefits line up with what you offer your employees? How consistent are their operating costs with yours? What types of risks are inherent to their business based on the industry you are in?
Secondly, resist the temptation to be rushed into a transaction. As the buyer, you ultimately have to live with the longer-term consequences. Therefore, you need to make sure you spend sufficient time to get comfortable with the acquisition. In some cases, a seller may impose a tighter timeframe to meet their needs, but as the buyer, you should not sacrifice quality due diligence just for the sake of getting a deal done. This article goes into more detail on how to create a process to measure the risk associated with a potential acquisition. This is an important part of any due diligence process and is well worth the investment of time.
Lastly, leverage the resources around you. Utilize the experience of the advisors you already work with, whether it’s your attorney, banker, accountant, or intermediary you have hired to help you with the deal. They can provide valuable perspective based on their cumulative experience from the deals they have seen over the years.
One of the main hurdles to a successful acquisition is seamlessly integrating two companies’ cultures, employees, and product offerings. Taking the time to identify the right match for your business, conduct careful due diligence, and seek guidance from your external advisors will help ensure your acquisition makes sense for your business and yields positive results – now and in the long-term.
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