Companies acquire businesses for a variety of reasons, ranging from acquiring talent, processes, proprietary technology and brands, to leveraging their ongoing operations.
Regardless of their reasons, buyers have to address several key issues during the acquisition process. Among them are how to find the right company to acquire, how to identify and avoid the pitfalls inherent in taking on a new business and how to ensure success with the acquisition.
There are challenges at every turn in the process, most of which can be overcome through the creation of a highly skilled internal and external advisory and integration team that makes the acquisition as seamless as possible, says Gregory J. Skoda, CPA, the co-founder and chairman of Skoda Minotti.
Smart Business spoke with Skoda to learn how companies can identify and leverage acquisition opportunities, put the right advisory and integration teams in place and enhance their chances of success in the process.
How do buyers find the right company, or companies, to acquire?
The key is to network as diligently as possible to identify and contact companies in a market or in a product line that might make good acquisitions. Buyers never know what they are going to find. If a business owner doesn’t know buyers are looking, both parties may lose out on some great opportunities.
Be persistent. Some successful buyers have simply picked up the phone, reached the owners — not necessarily on the first call — and eventually acquired a business. Once a potential acquisition candidate has been identified, it is as simple as talking to everybody they know who is in the information flow to learn about the company. That could include the intended acquisition’s employees, lawyers, accountants, insurance professionals and bankers — anyone who has knowledge about its strengths, weaknesses and markets.
Additionally, companies can go to the Internet for information, look for information from any kind of association, franchise networks, investment bankers or business brokers, and make cold calls.
Why should buyers consider acquiring a business that is in trouble?
Buyers should not automatically avoid a business that is in trouble. Companies that are in trouble can represent perfect opportunities for the right buyers. Buyers have to work to understand why the company is in trouble, determine if it is salvageable, and ascertain what it is going to take in talent, time and capital to turn it around.
Discovery and due diligence may prove that the company is in trouble simply because its growth has been ignored or mismanaged. It may be that the business was great when it was a $5 or $10 million business, but its managers are really not capable of running the $20 or $30 million business into which it has grown. A buyer who really understands that size of a business can help take it to the next level. It is critical for buyers looking at a business that might be in trouble to do due diligence to understand thoroughly the issues that have led to its difficulties.
How can buyers fully leverage the opportunities presented in an acquisition?
There are several ways. For example, they have to develop a clear understanding of why they are buying a business — it could be one of many reasons, including acquiring new talent, improving processes or expanding their customer base. They must have a clear idea of exactly how much money, time and talent capital they will need to accomplish the goal that they have set forth for the new business. Perhaps most importantly, they have to plan specifically how to integrate and run the new company. Failure to think that process through can have a tremendous negative impact on both the buyer and the acquisition. Another key is to avoid shortcuts in the acquisition process. Some buyers rely on themselves too much in the purchase and fail to evaluate the opportunity properly. They should not rely only on their own due diligence in deference to working with professional advisory and integration teams to complete transactions.
How does the integration team contribute to a successful acquisition?
The key is to put together an integration plan and team early in the process and make sure every member understands what the buyer is getting into. There has been more than one acquisition that has failed because the owners or senior management of a business bought a company without ever assembling the right internal and external advisory team and then spent the first few years after the acquisition trying to figure out how to put the proverbial round peg into a square hole. Putting the right integration team together can help buyers avoid making too many assumptions about the acquisitions. It is better for buyers to know everything they can about the new business before the acquisition process is completed. They have to get to a place where they can take advantage of all the knowledge that is available.
Assumptions can kill success. An integrated approach to acquiring and running a new business can help make the most of it.
GREGORY J. SKODA, CPA, is the co-founder and chairman of Skoda Minotti. Reach him at (440) 449-6800 or firstname.lastname@example.org.