Acquisition can be one of the most effective ways to rapidly grow a company, expand into new territories, and gain greater market share. If you’re pursuing an acquisition strategy and ready to evaluate an acquirer, here are six areas to focus your attention.
Does the acquirer understand your business? Knowing your business is key for the acquirer to understand and convey where your organization – and you – will fit strategically within the acquirer’s operations. This is especially important if there are performance-based components, such as earn-outs, to the deal structure. The acquirer should be able to articulate what your value is to them and vice versa after getting a better understanding of your business.
If the acquirer doesn’t understand your business or admit this lack of understanding, it may not be a good fit down the road. You could get frustrated having to explain your business constantly in order to get things done.
Do you have a decent comfort level with the acquirer? If you do not have a comfortable and approachable relationship, you might be left alone and feel like an island in the new business. Ask yourself:
- Does the acquirer care about me, my team, my customers, and employees?
- How will the acquirer treat or transition my employees if there is overlap in areas such as back office, IT, or HR?
- How does the acquirer execute for its existing customers?
- Can you talk to a few of the customers or business partners in confidence during the reverse due diligence process?
- Is the acquirer committed to the transaction in terms of seeing it all the way through and making the necessary investments and changes going forward?
- Can you trust the acquirer?
- Does it follow through on commitments? Or does it try to change the terms of the deal without sufficient reason?
I’ve walked from deals at the 11th hour due to acquirers’ less-than-optimal answers to these questions. I’ve also advised clients to step away if the acquirer makes material changes in the terms or economics at the last minute without providing an adequate explanation. It’s important in negotiations to have the confidence and wherewithal to do this.
Is the acquirer effective at cross selling? As early as the evaluation phase, a good acquirer will be looking to identifying cross-selling opportunities to further penetrate your combined customer base. A lot of this will depend on the acquirer’s overall vision for the company going forward. Where does it see your company adding value in the sales and delivery process for your customers? Where can the acquirer add value?
Does the acquirer have good systems? To acquire your company and be successful going forward, the acquirer should have sufficient systems (back office), tools (CRM), and methodologies in place. These systems should be scalable and the processes well documented. You don’t want to be a “square peg in a round hole.” If the systems will not support the combined business properly, it’s imperative to have a commitment from the buyer to invest in new ones.
Does the acquirer have enough capital? Sufficient access to capital is key here – in terms of funding not just the initial transaction but the combined company going forward. Study the balance sheet and cash flow statements and don’t be shy in asking questions if the acquirer’s bank has not provided consent to move forward with the transaction. A good M&A advisor should perform a combined pro forma P&L and balance sheet analysis to answer this question.
Do you know the acquirer’s vision? It’s important to spend some time with a potential acquirer to evaluate its level of care, commitment, and trust for you, your employees, and your customers. You may find out the acquirer has a plan to acquire your business, and turn right around and sell to another buyer. This might be acceptable as long as you’re in the know and on board with the acquirer’s motives and plans.
If you’re ready to take your business to the next level, a seasoned M&A advisor with industry knowledge can help answer these questions and more, assisting with the entire due diligence process of what to look for in an acquirer. A knowledgeable advisor can identify hard and soft synergies, help choose the ideal acquirer, and eliminate any risks associated with a poor acquisition. A good advisor will drill down for answers, and set you on a path to greater business returns.
Steve Pomeroy is the founder of Big Change Advisors, a unique M&A consulting firm in Los Angeles that helps businesses achieve big goals while making a big impact on society. To request a free consultation, contact us.
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