Deciding to acquire another company is a big decision that requires resources like time, money, and expertise. If you want to make a potential business acquisition successful, you’ll need to have a thoroughly planned out business acquisition strategy. To follow a thoughtful and informed process, use the following seven steps to plan and analyze the acquisition:
- Define your acquisition strategy
- Identify target companies
- Build a business case and develop financial modeling
- Do your due diligence
- Negotiate the deal structure for acquisition
- Sign and close
- Complete your post-close integration
Business expansion through acquisition has the potential to:
- Expose your business to a broader audience – clients and talent
- Increase your customer base and improve revenue
- Raise your profits
- Diversify services, markets, regions
- Create new opportunities for your existing staff
- Increase company value
Top Questions to Ask & Answer During the Strategy Definition Stage
Business expansion through acquisition can be costly, distracting, and frustrating if not planned properly. The first step in conducting a successful business acquisition is to decide the why, who, what, where, and how you want to acquire a company. Focus on asking the following critical questions to fully define your acquisition goals and create a plan that offers stability and forethought throughout the purchase process:
- Define Your Why: The first question an informed seller will ask is why you’re acquiring. It is important that you and everyone on your team have a consistent response. We recommend that your answer ties back to your overall strategic plan, so you can explain the vision you have for the future when asked. This vision-oriented answer will inform the seller if your acquisition goals align with their vision of a combined future.
- Who: Who is the ideal seller? This is sometimes hard to define in the beginning because we all want many things from the transaction, and one of the most important is your defined why – what characteristics will move us closer to our Vision? By setting the gold standard of who you would ideally want to acquire, you’ll have a roadmap to what to search for and the most important characteristics and values. As you talk with potential firms, go back to this roadmap and rank where they align and where they do not. Having a strong idea of your ideal acquisition offers a way to rank potential firms and ways to consider if the areas out of alignment can be overcome.
- What: What size firm? What markets do they serve? What value range are we comfortable spending? What resources are required, and do we have them internally? Does the internal team have resources within their teams so they can devote required time to the transaction?
- Where: Geography matters. Have you done the market research to know where to expand your business? When you do not understand the long-term potential of the region, you are buying into one of the most common mistakes that cause many business acquisitions to fail. Do the research and develop criteria that matters for your business. Since your criteria will be different than other buyers, make sure it is unique to what matters for your long-term success. Are there schools close by that offer a talent pool for my business? What are projections for growth in the business’s location and surrounding areas? These are just a sample of questions to consider.
- How: Defining your ideal structure early in the process is another valuable piece of information to provide the seller early in the process. Understand how:
- Much money you are willing to spend and your timeframe for return on investment
- You will structure the payment terms
- You will integrate the company once purchased
These “how” questions can range from how to handle the most basic process to high-level deals terms. Not every “how” has to be nailed down. Quite frankly, until there is a seller, it will be impossible to define every “how.” The key is to define the non-negotiable items, or at least the items (such as price) that you know have limits for your own resources.
Join us next week, when we will discuss the second step of the strategy creation process: Identifying target companies.
Interested in how our business acquisition team can develop a custom purchasing strategy for you? Contact us today for a free consultation on how we can work together to help your company grow.
If there are other topics you’d like to learn about, please feel free to submit them to us!