6 tips for properly planning an acquisition
Before the acquisition: Take your time
To survive in a competitive environment, it’s imperative to keep growing your business. Growth can come organically, from an increase in sales and operations, or it can come through acquisition, which may allow a company to scale up more quickly and efficiently and reach a size and positioning that lets it generate greater profits.
Larger companies enjoy several advantages, including being more attractive to customers and suppliers: They know they can count on a partner that is able to meet their needs and expectations. Employees, too, feel that their career prospects are better with a larger company.
Lastly, acquisitions are a quick way to gain access to new technologies, products and markets, plus new employees and customers, while limiting the risk that comes with having to innovate or expand into the unknown.
1. Carefully prepare the process
An acquisition can often make strategic sense, but the process is complex. To succeed, you need to target potential acquisitions that will enrich both the company and its shareholders. Avoiding paying too much for acquisitions, and integrating them quickly and efficiently into the existing business, is key to deriving the maximum benefit.
So the first step involves asking yourself the right questions. It is critical to have a clear vision of why a particular acquisition is the best way to grow your company.
- Do I want to address a weakness by buying a company that is better positioned in a market that I covet?
- Do I want to expand my range of products or services, or vertically integrate production?
- Do I want to achieve economies of scale?
- Do I want to become larger in order to better compete and offer lower prices?
- Do I want to gain access to human resources and talent?
The number-one aim of any acquisition should be to strengthen the company’s strategic position. You must establish as clearly as possible what your goal is in making an acquisition. Letting yourself be persuaded that an acquisition you hadn’t seriously considered is a desirable one can be very dangerous.
Once you’ve established your goal, you can start looking for companies for sale that will help you reach the objectives you set out at the beginning.
2. Set up a working group with your advisors
The acquisition process is long and requires a great deal of work and attention. Often, it is necessary to set up an in-house team to manage such a major undertaking. Companies that make multiple acquisitions generally appoint a director to be in charge of acquisitions and set up a team devoted to selecting and acquiring other businesses.
Obviously, not all companies are large enough to have a whole team dedicated solely to mergers and acquisitions. But at the very least, putting one of the company’s executives in charge of M&A is very wise.
Eventually, the acquisition process will also involve your accountants, financial institutions and lawyers. It’s helpful to have your lawyers involved right at the outset, as they can act as counsellors during the acquisition. It is up to you to decide what level of engagement you expect from them.
It makes sense to consult with your team at the very beginning of the acquisition plan so that they can support you from start to finish.
Some accounting firms offer specialized merger and acquisition services. But even if yours does not, it is still important for your accountants to be involved in evaluating and performing due diligence on the targeted acquisition.
Your lawyers, meanwhile, should take part in preparing the documents necessary for making the acquisition. They can also participate in the due diligence, particularly in terms of the state of the target company, the existence of permits, licences or patents, for instance, and the existence of current or possible litigation. In the case of a large acquisition, they will assess whether it raises competition or antitrust issues.
In certain industries, business transfers are subject to government approval. Your lawyer should be able to guide you in choosing which clauses to include in your offer documents and in the acquisition agreement.
For more information, read the full article on National Bank website.