By, Rick Vanderwal – Senior Partner
That Is The Question
You have been in business for 10+ years and the good news is that you are still in business. You have survived the early start-up years, working 80-100 hours/week, worrying about how you will make payroll, building customer loyalty, etc. You are at the point where your management team is dealing with most of the daily issues, you are consistently making the payroll and the bank is not breathing down your neck. You are comfortable,but you may also be wondering about your future growth.
Then you find out that a related business in your industry that has a strategic location, is up for sale. WHAT DO YOU DO? Do you expand or sit tight?
This scenario happens more frequently than you might think. Unfortunately, it may also cause a lot of consternation which could result in procrastination.
There are three basic questions you should ask that can help you quickly decide whether you should pursue the opportunity or pass on it.
- Does the acquisition fit into your long term strategy? If your strategy is to grow organically in the identical product/services, then it may not be for you. But, if you want to diversify or expand into related services/products this might be an ideal opportunity.
- Will there be significant synergies or will the combination of the two companies make both entities better? In addition to the potential of each entity sharing services, the selling entity may have the location, the talent, the technology, the contacts, etc. that would help your existing business.
- How will you pay for this purchase? if you are unable to pay cash for this purchase, you will have to finance some or even possibly the entire purchase price. You need to consider whether your existing company has the financial foundation for acquiring financing, whether you have a history of positive cash flows, and how strong your relationship is with your current lender.
If your answers to these questions make you uncomfortable, this is probably not the acquisition for you. However, if this opportunity fits into your long term strategy, there are significant synergies that could be realized and you have the money or the financing available to make the purchase, congratulations! Now let’s proceed to the next stage. Look for our newsletter next month for a discussion on the next round of decisions to be made.
For more information on mergers and acquisitions, contact Rick at firstname.lastname@example.org