There are a lot of potential advantages to acquiring another entity, and this is true for both fledgling startups and well-established enterprises. Joining forces with an existing business by virtue of a merger or acquisition can help a company increase its market share, tap into new geographical areas, expand product and service lines, eliminate a competitor, or cut costs through economies of scale. It does not necessarily matter why a company pursues an acquisition, so long as there is ample preparation beforehand and a carefully crafted, well-executed plan. Here are eight best practices for acquiring a company:
1. Assess Internal Capacity and Finances
Prior to considering an acquisition, the company contemplating this move must ensure that it is in good standing operationally and financially. Combining two separate entities can be quite complicated and requires a lot of hard work, so the acquiring company must be on solid footing to be able to survive this type of transaction. After all, in addition to having to continue to run the business, leaders will have to devote a great deal of time to negotiations, due diligence, document review, financial analysis, and so forth. Thus, it is imperative for a company to take a hard look at its capacity and resources to ascertain that the acquisition is not only a wise business move but also one that will be achievable.
2. Establish Goals and Objectives
Assuming that a company does in fact have the ability to execute this sort of transaction, it is also important to ensure that there are clear goals and objectives for doing so. The decision to acquire another business brings along a lot of work, as well as a lot of risk, so it is important to figure out what it is that the company hopes to accomplish. And, depending on what those goals and objectives are, pursuing a certain business may not actually make sense. The goals must be established early on, as these will help dictate the type of entity and transaction that the company ought to pursue.
3. Do Some Serious Research
Companies have to make a thorough assessment of any potential target company before initiating contact. Granted, it will likely be easier to learn more from the business once interest is expressed, but it is still possible to learn a great deal through the company’s own research efforts. Depending on the nature of the target business, there should be public records, such as SEC filings, certificates of good standing, intellectual property registrations and applications, and other documents that will provide a sense of the target company’s existence and standing. During a cursory review of the entity, even the smallest red flag may provide a good reason not to bother moving forward.
4. Build the Best Team
At some point, a team of experts and consultants will no doubt be needed to help guide the acquiring company through the acquisition. This team generally includes bankers, accountants, attorneys, and finance analysts. The people selected must have experience analyzing the prospective deal, understanding the financial components, making forecasts and projections based on prior performance and existing data, and finding creative solutions to the complex problems that will inevitably arise during this kind of deal.
5. Perform Rigorous Due Diligence
As the transaction continues to move forward, with all appropriate people in place and analyses conducted, a rigorous due diligence investigation is obligatory. The acquiring company must ensure, via this more formal review process, that it understands and accepts what it will be getting by purchasing the target company. In the past, the due diligence investigation primarily focused on legal, financial, and compliance matters, but it is usually quite broad in scope. Now, it also tends to incorporate a review of things like intellectual property, digital networks and security, and environmental matters. Basically, the acquiring company needs to have a strong grasp of virtually every aspect of the target company’s business, as so many facets encompass some level of risk.
6. Prepare for the Transition and Integration
People often think that closing a deal is the hardest part, but it is generally everything that comes afterward that is quite tricky. Figuring out how to merge the business operationally, financially, and culturally is often rather challenging. The transition and integration plan must be considered and developed from the very beginning, as trying to navigate this after the fact may prove fatal to the success of the post-acquisition entity. The acquiring company must understand from the outset the types of issues that may arise and how they will need to be handled, so that they can create clear milestones and incentives to foster engagement and cooperation.
7. Obtain Necessary Rights, Permits, Licenses, and Accounts
Many companies have rights to certain types of data, as well as special permits or licenses to engage in certain types of activities. In addition, most companies utilize one or more types of software or online business solutions. These are all things that the acquiring company must know about and gain ownership of or access to subsequent to closing. Unfortunately, this is often something that is forgotten or overlooked and can end up delaying the success of the transition. This is particularly true when employees or management at the target company do not stay on after the acquisition, and their account information is not handed over, for whatever reason.
8. Convey Compassion, Foster Communication
Buying and selling a business can be very emotional for some company leaders and employees. As a result, the acquiring company must be respectful of the target company’s products, clients, model, and achievements. In addition to conveying empathy and compassion, communication is absolutely critical throughout the transaction. There is uncertainty and fear associated with acquisitions, so timely, transparent communication is key to allaying these concerns.