Timing Business Transactions: Buy Side Considerations

by | Oct 8, 2013 | Blog

Part 2 in a 4 part series outlining Business Valuation, M&A and Exit Strategy.

Author: Jeff Bronswick

Acquisitions and Transactions are not just for Big Companies

If you read the Wall Street Journal or listen to Bloomberg, you hear about what seems like endless mergers and acquisition activity going on, especially among large companies.

Lately Dell has topped the news with their plans to go private. Another notable transaction was the purchase of the Washington Post by Amazon CEO Jeff Bezos.

In case you haven’t been following, Marissa Mayer, the CEO of Yahoo has bought more than 20 companies in her short tenure and tech companies like Microsoft and Cisco are picking up new companies on what feels like a weekly basis.

Before you suggest that these are all big companies, and maybe you are a little company, let me just say this.

I know that these are all massive publicly traded companies.

However, you have some things in common with them.

For instance, all of these companies were small at one time, AND it is absolutely possible that acquiring one or more companies may be a strategic way for your organization to strategically and quickly expand.

But before you jump into buying businesses, there are a few questions that every business owner must ask.

Have you considered these Acquisition FAQs?

1. What are your goals for business growth?

Do you have clear vision into where you want your business to go over the next 1, 3 and 5 years? Before looking at acquiring companies a clear understanding of where you want to take your business is critical to implementing an M&A strategy.

2. What resources are available to complete an Acquisition?

You can have a vision for growth with all the clarity in the world. However, you have to know what access to financial resources you have to complete a deal. This will come into play with the types of offers you can make (Cash vs. Financed) and the type of responses you may receive.

3. How are acquisitions targets identified and vetted?

To align with your business goals, you don’t want to just acquire companies for the sake of it, you want to seek out and find the right targets. Questions such as vertical (supply chain) vs horizontal (Region, customer base) growth are significant considerations. Additionally, how closely do these companies align with your immediate and long terms goals?

3. Have you considered the non-asset considerations of acquiring a business?

Besides the tangible items that you will acquire, have you taken into consideration the intangibles? The relationships in the supply chain, the employees relationships with current ownership, the morale of the current organization etc?

4. Is it better to acquire Stock or Assets only? When and Why does it make a difference?

When you acquire stock you can assume contracts and existing business relationships whereas with assets you are liable to continue those relationships. However the Tax implications and liabilities depending on the deal structure can make a large difference in valuation. Did you know there are ways to acquire stock but treat the purchase like an asset deal?

5. What does the due diligence process look like?

Every transaction requires considerable diligence and this is key to making a good business decision. Diligence should include an in depth review of financial data, but also requires time under the hood with regards to customers, employees and suppliers. The process can take weeks or months, but a diligence plan must be followed to ensure a good purchase decision.

6. How do we come to an agreement on Valuation?

The intrinsic nature of value can be a big sticking point in getting deals done. Business owners struggle to accept valuation, especially when the numbers don’t support their beliefs in what the business is worth. A great way to overcome this is bringing in a certified valuator to provide a detailed (unbias) analysis of a businesses value.

7. Is there a plan for business integration?

In spirits of the “Non-Asset” considerations mentioned above, not only is awareness required, but also a plan of attack. If the company has damaged relationships with customers and/or suppliers, how do you plan to correct them? If the company has internal employee issues, how will that be addressed. Further you have to consider multiple computer systems, accounting packages and role duplication. Until these items are hammered out, the return on the investment will be less than desired.

Acquisition Success in Short

The buy side of an acquisition is highly complex and these answer just a few of the many questions that any buyer may have. However, in my experience, having handles many business transactions, I have found that the mystique and complexity around acquiring a business can be quickly overcome.

For the business owners whom I have seen succeed in growing there business through M&A activity it has come down to the following.

  1. Clear understanding of their business goals.
  2. Engaging the correct resources
  3. Being methodical with diligence
  4. Willingness to be opportunistic
  5. Taking Action

Growing your business through acquisition is an exciting and potentially fast way to accomplish your business goals.

With the right guidance it can also be less difficult than it may seem, making it an opportunity for more than just giant corporations, but for companies just like yours.

Action may be the only thing between you and your business goals leaving me to ask you this question.

What is holding you back from pursuing growth through strategic acquisitions?

Stay tuned for part 3 of the valuation series where we discuss the “Sell Side.” And if you haven’t read the first post from the series yet, it can be found here.

Disclaimer: The information contained in this Blog (the “Blog”) is intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. In no event will BRP, or its partners, employees or agents, be liable to you or anyone else for any decision made or action taken in reliance on the information in this Blog or for any consequential, special or similar damages, even if advised of the possibility of such damages.

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