There are many ways to expand your business. One is to focus on increasing sales. Another might be to ramp up your marketing efforts to drive more revenue. You could add new products and services to the lineup of offerings, thereby giving yourself more breadth. Or you could expand exponentially by purchasing another company.
An Acquisition Could Be the Solution
If you’re in a position to do so, purchasing another business is an excellent way to expand your reach. In most instances, you automatically have access to a new set of clients. Assuming the company was successful at what it did (and if it weren’t, you wouldn’t be buying it), you also absorb the brand awareness and customer loyalty generated by the company, as well as any associated goodwill. If you want to grow your business, an acquisition can be one of the best moves you’ll make.
That being said, much of your success depends on choosing the right kind of business to acquire. Here are some things to consider as you assess available companies and weigh them for purchase potential.
1. Consider the reasoning behind the acquisition.
While the brand or individuals may be appealing, it’s crucial to determine how acquiring this company aligns with your strategy. How will you justify it to your investors? More importantly, does it support your overall vision and mission? Are you seeking to acquire a new product that will open up a new business line, or are you more interested in acquiring the talented team currently running the business? There are many ways an acquisition can benefit you, including removing a competitor from the marketplace. When considering an acquisition, discussing the strategic reasons behind the decision is critical to the success of the deal.
2. Look hard at what you’re getting.
Take a deep dive into what you’re actually getting with the purchase. Is it a brand, a team, a customer base, a product, technology, or a combination of all these? Be aware that you’ll also be taking on the liabilities of the company you’re purchasing, including those that may not be discovered until after the sale. You might want to set some key performance indicators (KPIs) to help you determine the success of the acquisition once it’s complete.
3. Be prepared to operate in new markets.
Is this venture taking you into new markets? If so, there may be other factors to consider, such as communication challenges, state rules and regulations, workers’ rights, intellectual property laws, and geographical or seasonal risk. Make sure you’ve assessed all the inputs before making your final decision on whether to move forward with the purchase.
4. Involve an outside entity as intermediary.
It’s helpful to have a third party involved to act as an intermediary during negotiations. Many business sales include a clause stating that the seller sticks around to help during the transition phase to the new owner. Because of this, it’s important to get this relationship off on a good foot. Buying (and selling) a business is an extremely emotional process. It’s helpful to have someone else in the room who can keep their cool and help tone down any strong emotions that arise during the negotiation process.
5. Get to know the team.
Prior to acquiring a business, evaluate the team you’ll be working with. It’s likely that you’ll have to make decisions on who to keep and who to let go. Try to understand the strengths and traits of the leadership team. They’ll be your biggest help when it comes time to make cuts.
6. Develop a comprehensive integration plan.
Prior to the acquisition, you should put together a plan for integrating the two companies. Some owners like to assign a team for this purpose. Ideally, the plan will have short- and mid-term objectives designed to smooth the integration of the companies and the transition to new owners. It’s often helpful to seek outside help for this task, and it would be money well-spent. Many acquisitions fail because the new owner didn’t pay enough attention to the integration phase.
7. Remember that employees are real people.
People are the most valuable component in any transaction. Without employees, even the best company will fail. Pay close attention to the impact on the staff of both companies and particularly the one being acquired. Clear communication is essential here. Before the deal is finalized, give employees a clear message and do it before they find out about the acquisition from clients or the media.
Do Your Due Diligence Ahead of Time
Acquiring a new company can be an exciting adventure and an excellent way to grow your business. But it can also sink the ship if not done right. Before you get too excited about a specific business prospect, take some time to do your due diligence. Research the company and its leadership thoroughly, and find out everything you can about the company before making an overture. The time spent on this exercise will pay off in spades on the back end!