If you are considering acquiring another company, it is important that you lay out a structured plan which adheres to all the laws and regulations necessary to complete a buyout of another business. This can be a precarious undertaking. For this reason, I have compiled this concise guide which covers the four main aspects of acquiring a company.
Understanding the Difficulties of Acquisitions
Before we look at the four stages of acquiring another company, it is critical that you understand some of the challenges you will face when buying a business.
Although acquisitions occur on a daily basis throughout the business world, each acquisition is drastically different from another. The prime difficulty of acquiring another company, is appreciating the unique aspects of the target business you are hoping to buy. And, incorporating this individuality into your approach.
Begin by appreciating the assets, market context, and employee-employer relationships that have been established by the target company. As a result, you will have a sound foundation from which to base your approach to the acquisition, its valuation, and the negotiation process.
Finally, it must also be understood that the process of acquiring a company will increase in difficulty depending on how established the target business is. Buying out the company in its infancy is different from buying out a company that is well-established or even at the end of its effective life.
With these challenges understood, you can approach acquisition through the following four stages.
Stage One: Goal-Orientation
As a good M&A advisor might tell you, each successful acquisition is based on a sound plan. This plan must be implemented in a way that allows you to achieve your end goal. For example, if you are buying a company in order to close it down as a competitor, then your acquisition plan will differ from someone who wants to acquire a company to incorporate its branding.
Whatever your goal is, it will define the resources you require. When drawing up your game plan for the acquisition, keep your end goal in mind. If you are going to strip the assets of the target business, then you do not have to spend time researching and putting a new personnel infrastructure in place.
If you are acquiring a company in order to propel its business model, then during the acquisition process, you must think about how you will find new markets for this business. And, how you can grow its bottom line.
The takeaway here is that your end goal informs your plan, and your plan makes the end goal a reality.
Stage Two: Acquisition Personnel
We have established that acquisition is a complex task. This is why; most serious acquisitions are carried out by a dedicated acquisition team. Unless you are capable of carrying out all acquisition duties yourself, building an acquisition team is a must.
The exact personnel you will need to carry out an acquisition will vary depending on your financial resources and your own skill set. However, a good rule of thumb is to break necessary roles down into legal, financial, HR, IT, and PR.
Your legal department will ensure that an acquisition is carried out to the letter of the law. This will involve both regional and international legislation where it applies. Legality should be of prime concern.
The financial component of your acquisition team will often be headed up by an experienced investment banker. This can also be carried out in coordination with an accountant. Between them, they will ensure that both your company and the target company are in a healthy position to carry out the acquisition, depending on your end goals.
Your human resources team will organize and oversee structural changes in any staff positions with your existing company, and facilitate the transitional period as your management takes control of the target business.
An IT team will ensure that any technological considerations are handled during the acquisition. This will minimize disruption to departments inside both companies in terms of their IT framework.
Finally, your public relations staff will handle the flow of information on your behalf. This traditionally involves public announcements of the acquisition, but it can also involve information being communicated to employees and customers.
As mentioned above, the number of people in each department will depend on your resources and the size of the acquisition. The larger and more complex the acquisition, the more people are required to ensure its completion.
Remember that when acquiring another business, you are opening up your existing business to an element of risk. To minimize this risk, you should carry out thorough due diligence throughout the entire acquisition process.
In the beginning, you must use due diligence to research available public information about the target company. The target company’s relationship with its customers and its brand reputation should also be investigated thoroughly. For example, if a brand has become toxic, then it may not be a wise business move to carry out the acquisition.
Once you have begun the process of contacting the target company and registering your interest in acquiring it, you should then ask for access to critical financial data. This will involve all the intricacies of the company’s business transactions, as well as any forecasts for its future growth and product/service launches.
You should also look at the company culture of the target business. What sort of ethos has the company been developed from? In some situations, ethos may be so different from your own, that the acquisition may be more problematic than originally anticipated.
Once all the above is done, you will begin the negotiation process. Depending on whether this is a friendly or hostile acquisition, negotiations will be very different in approach. Having a lawyer present at all stages of negotiation is a must.
It is your duty as the custodian of your company to secure the best deal possible for the acquisition. From this perspective, it is important to be firm about valuation, though leaving some room for give-and-take is advisable.
If negotiations are proving problematic, then incentivizing the deal with a better price. Consider offers of an agreement to take on existing staff, or perhaps even offering stock in your own company to board members or shareholders. These strategies may get the deal over the line.
However, never overpay for an acquisition. Once you have completed the negotiations, it is time to get your legal team and the legal team of the target business to draw up a contract of sale. Once signed, the acquisition is complete.
Learning More About Mergers and Acquisitions
I hope you have found my concise guide to acquisitions helpful. If you would like to learn more about carrying out mergers and acquisitions, head on over to the DealMakers Podcast where I interview successful entrepreneurs and business people so that you can learn from the best.