As we return to our desks after the start of the New Year, the first few days are filled with well wishes for a happy, healthy and prosperous New Year and questions about your New Year’s resolutions. On the personal front, popular resolutions are to exercise more, spend more time with family or read more. What about professional resolutions? Are you and your leadership team setting corporate New Year’s Resolutions? Perhaps you’re resolute to cut travel expenses. Train more. And one of my favorites, determine profitability at a client level.
If one of your corporate New Year’s resolutions is to acquire a company in 2015, here are 5 important things to factor into your decision making process.
Know why you want to make an acquisition. Disciplined buyers of businesses know why they want to make an acquisition and exactly what type of company they are seeking to buy. Professional buyers like private equity firms set a great example by detailing their acquisition criteria in writing, including specific components such as size, type of business, and geographic location of the target’s corporate headquarters. Developing an acquisition criterion with management fosters their active participation to identify opportunities in the market.
Be proactive, not reactive. Some buyers are opportunistic and that’s fine. If the right deal falls in their laps they will pursue it. Most of the time, deals do not close this way. If you are resolute to close at least one transaction in 2015, be prepared to kiss a lot of frogs to significantly improve your chances that one will turn into your prince or princess. Conduct market research to develop a list of target companies to approach. Prioritize your target list as much as possible. Communicate your interest directly to owners and indirectly through your network of professional contacts. Be prepared to follow up a lot. Attending conferences and trade shows is a great way to get the word out.
Say not a lot but don’t burn any bridges. Experienced buyers know they may have to visit with dozens of companies before finding one they want to buy. Each of the companies that a buyer turns down creates an opportunity to find another target to approach. Business owners know other business owners and some might be interested in selling. Also, just because a company is not for sale now does not mean that it won’t be for sale in the future. If you establish a good point of contact they may just call you when the timing is right for them to sell or refer you to a friend who is ready to sell now.
Define your acquisition team before approaching sellers. Acquisitions could become a tremendous distraction to the buying company if the management team is not prepared to conduct due diligence. Defining the diligence team up front, and making sure they have the skills to complete their assignments, could be the difference between a successful closing and a failed deal. It is also critical to know early in the acquisition process how your company will integrate the selling company assuming the transaction closes.
Make sure your financial house is in order. Some sellers may agree to terms that include seller financing or deferring their payments based upon their company’s future performance. This may only cover a portion of the purchase price. A buyer most likely will have to come up with cash at closing to satisfy the seller’s requirements. A buyer’s internal cash resources may be satisfactory depending upon the size of the acquisition, however it is prudent to line up financing alternatives in advance of an acquisition process.
Happy hunting! Be sure to drop us a line at Kaulkin Ginsberg and let us know your current acquisition interests. Don’t assume we know what you’re looking for and it is quite possible we may know a company that fits your criteria.