Last week’s post discussed mergers.
Unlike mergers, acquisitions don’t create a new legal entity. Instead, one business buys another and assimilates it into its own.
Today’s post will give an overview and some resources on business acquisitions. So, it’s time to dig in if you’re in the market to buy a business or sell yours.
Things to Consider When Acquiring a Business
The first thing you must do, no matter how Simon Sinek-ish it sounds, is establish your “why” for purchasing a company.
It may be to break into a new market, acquire talent, or eliminate a competitor. No matter the reason, understanding your goal is foundational.
Once you’ve got your reasons, review them with mentors, trusted peers, a business attorney, and a CPA. They will be able to offer insight into timing and alternatives that can help you make the best decision.
If the best decision is an acquisition, then there are some steps you must take to ensure the acquisition makes sense.
Like with mergers, acquisitions require some homework. And that due diligence comes in two flavors: hard and soft.
Hard due diligence is the playground (or battlefield, depending on your point of view) of lawyers and CPAs. It involves the valuation of the business so a fair price can be determined. It also requires a fundamental analysis of the company’s finances. It’s here that accounting and legal concerns are unearthed.
However, even the hardest due diligence is susceptible to manipulation by the representing company.
That’s why soft due diligence acts as a good empirical counterweight.
Soft due diligence is more qualitative in nature. It assesses the quality of management, the employees, and a company’s overall culture. These aren’t always easily measured, but they are critical and cannot be discounted.
For a deeper dive into both types of due diligence, take a moment to review this checklist.
Things to Consider When Being Acquired
Those looking to acquire a business have a lot to consider, but so do their counterparts. Knowing your personal goals will help determine if selling is a good option. If so, discuss the following points with your legal and accounting team.
Determining the viability of the buyer
Deep research is necessary in this step. For a buyer to be viable, they must have a financial track record. This will help your team determine the buyer’s legitimacy and, to a degree, any offer they make.
From there, you can determine if you want to enter negotiations.
You’ll need to know the value of your company to negotiate decent sale terms. You’ll also need to consider personal financial stability after the deal closes.
Of course, you’ll also need to take care of your employees.
That’s why it may be wise to negotiate as much transparency as possible. Acquisitions make employees nervous for several reasons. Speak to them about their concerns so that the human element of fear doesn’t derail negotiations.
Finally, you’ll want to have a non-disclosure agreement signed. The buyer must conduct their due diligence, but you still need to protect confidential information in case the deal falls through.
The Bottom Line
Acquisitions are difficult. And it’s estimated that more than 70% of them fall apart before a deal is penned. But with planning and a good team, you can increase the likelihood of making yours a good one.