Develop Your Acquisition Strategy
Probably the most important step to develop your acquisition strategy is to create an Intelligent Strategy so that you are prepared for success. This means you’ve done your homework and background preparations, so when an opportunity arises, you’re ready to quickly and confidently respond. The steps include:
Business and financial statements are in order
Don’t make your move before getting financial statements in order and procuring tentative agreements with your bank and or equity partner. Keep tax returns and financial statements current and understand the impact the acquisition will have on cash flow.
If you’re even considering an acquisition, proceed as if purchasing real property: get pre-approved credit. The acquirer will know you’re serious, you’ll save time, and you can often negotiate a better deal, especially when offering “all cash,” or having financing already in hand.
Future think – understand today’s and tomorrow’s trends
If you’re not a market/product visionary, acquisitions can become a financial debacle. For example, imagine the success you would have experienced by predicting the explosive growth of performance products for light trucks starting 10-12 years Conversely, if you had not foreseen this market’s decline in the past 18 months, an acquisition in that sector could be putting your core business in jeopardy.
If merging or acquiring, be very clear on the risks and rewards
While there are many types of acquisitions, your initial decision is whether to seek a merger or acquisition. The strategies are profoundly different.
In a typical merger, you’re often creating a partnership and maintaining your brand. This does not necessarily mean a “merger of equals.” You may become a minority owner in the new enterprise. The current owner’s role may entitle them to decision-making power and some level of authority in the new entity.
In a typical acquisition, one company is acquiring the assets of the other company and the future of its owner is yours to negotiate. Often the owner stays for a period of time as a consultant. In some cases, the owner may stay to manage a division or the company.
In either case, take a hard look at your nature and personality. Decide how willing you are to share or give up control. Then base your strategy accordingly.
Successes and Failures
We’ve observed successes and failures in mergers and acquisitions. The failures have always involved a poor strategy, or poorly executed integration after the acquisition has closed. As with most endeavors in life, success or failure hinges on being prepared and informed, and on your ability and willingness to be flexible and accept change.
By exercising Intelligent Strategy and using an experienced M&A consultant to guide you through the process, you will avoid many of the pitfalls that can occur during a merger or acquisition and maximize your effectiveness, profitability and success.