Mergers and Acquisitions wordl

To Buy or Not To Buy, Pt. 2


By, Rick Vanderwal – Senior Partner

That Is The Question

Last month we left off with the fact that a strategic business is now up for sale.  The opportunity fits into your long term strategy, you can envision substantial synergies to owning this entity and financing may be achievable.  What are your next steps?

At this stage, you need to ask yourself a few more questions.

Does your existing business have a firm financial foundation? In other words, does your existing business model produce cash flows that easily support your debt service and capital expenditure requirements?  We always say that you should grow from a position of strength, not weakness.  If your existing business is struggling to produce positive cash flow, then you may want to focus on getting your business back in shape before considering any acquisitions.  We do not recommend buying a company in hopes that it will cure problems in your existing business.  That is risky business!

The next question is whether you have the talent in house to integrate the acquisition into your existing business so that you benefit from the planned synergies as quickly as possible.  Do they have the capability and the time to take on the many new tasks of integrating an acquisition?  If you stretch your people too far, both businesses will suffer.

Here is the next key question. Are you willing to spend the time and money it takes in terms of financial and legal talent to;

  1. Develop a proper valuation of the operations and real estate, if any,
  2. Perform appropriate levels of due diligence,
  3. Determine the proper legal structure, and
  4. Negotiate all the purchase documents.

Keep in mind that you could go through all this effort and expense with the end result of not actually closing on the deal.

If you decide to move forward and are able to successfully close on the deal, you are not out of the woods yet.  Below are some of the common pitfalls to acquisitions:

  1. Not having enough financing to pay for the due diligence, closing and integration costs.  Financial projections done before hand should be very conservative and incorporate an expected decrease in cash flow in both businesses for a period of time.  The question will be by how much and for how long.  This is not a time for being optimistic.  Plan conservatively.
  2. Not integrating fast enough.  There is a tendency to relax immediately after the closing and worry about the tough integration later.  That is a huge mistake.   Implementing the plans for integration should start Day 1.  It is absolutely essential to start capitalizing on synergies immediately.
  3. Beware of CULTURE CLASH!  All companies have their own personalities and it is important the employees know what is expected of them given the corporate personality.  Success is dependent on everyone being on the same wave length.  If the personality of a company has to change, then it is imperative that the change be communicated and enforced immediately.

Acquisitions can be fun and prestigious but proper planning and execution are required for success.

Experience On Demand has a lot of experience with acquisitions.  We would be happy to assist you in the evaluation of a prospective acquisition and the subsequent planning and execution of integrating an acquired company.

For more information on mergers and acquisitions, contact Rick at