Growing your company through mergers or acquisitions can provide a tremendous boost to business, but isn’t something to take lightly.
“You have to consider how you want the organization to grow,” says Kenneth M. Haffey, CPA, CVA, a partner with Skoda Minotti. “When you start identifying targets, consider what sort of operational challenges you will face. We call that smart growth — what should an organization look like for the short-term and the long-term.”
Smart Business spoke with Haffey about what owners should know before making the deal.
Before considering growing the business through a merger or acquisition, what should a business owner think about?
At the end of the day, you have to know what your goals for the merger or acquisition are. Will the target company be an add-on or tuck-in to an existing segment of your business? The bottom line is to understand the who, what, when, where and why of the potential acquisition or merger before you start the process.
Although often overlooked, the ‘where’ is actually just as important as the other questions. Acquiring or merging with companies in different parts of the country poses specific operational challenges, not the least of which is banking. With whom should the company bank? There are many large national banks now, but that wasn’t the case 10 years ago. If one of the involved company’s banks does not have a presence in the other company’s geographic area, then simple operational issues can become a challenge.
What should business owners keep in mind during a merger or acquisition?
Pricing is one element. Another is structuring the transaction correctly, which comes with hiring competent advisers. I can’t tell you how many times someone has their niece or nephew who just graduated from law school and took one M&A class working on these major transactions. Needless to say, that poses several challenges. You need a deal expert to make sure little things aren’t made into big things.
Years ago, when we were working on a deal with a client, three times in the first hour of our conversations, the attorney on the other side of the table came up with a ‘deal breaker.’ The third time I said, ‘If we are one hour into this and you already have three deal breakers, maybe this isn’t such a good idea.’ But this person was just trying to show his client that he was ‘in charge’ and that they would get the better of us.
After that, the individual owning the other business grabbed his attorney and said, ‘Let’s go out in the hall and talk.’ When they came back in, they had a completely different attitude. It wasn’t us versus them; it was us and them. Acquisitions and mergers only work if it is fair on both sides.
A confident and competent deal attorney and accountant or financial adviser will help make that happen. It’s important to make sure you understand the other side’s points. If every negotiating point is only going one way, why waste the other side’s time?
