6 Questions to Ask Before Pursuing a Company Acquisition
As your company evolves, you might consider the acquisition of other companies that can
strengthen your offering and fuel growth. Recognizing an acquisition opportunity is just the first step in what is often a long and complicated process. The following are questions to ask before your company pursues an acquisition.
1. Is your company financially stable?
First and foremost, your company must have the financial capacity to acquire. Your business must be in a healthy place, generating revenue with strong product-market fit and have strong investors or funding sources secured. It is rare that a company would reach this point before it reaches Series B. During the startup stage, a company is trying to find product-market fit and gain committed customers to establish a base. Series A is the acceleration and growth phase, and once a company is stable with a sustainable growth plan, it is considered at Series B. This is when your company can begin to think about diversifying revenue streams and expanding your product and customer base with an acquisition. You must take a hard look at your company’s growth and financial position to determine if it is in the right position to acquire.
2. Is the timing right?
Beyond financial capabilities, your company needs the correct internal capacity in terms of team size and traction for a viable acquisition. Acquiring another company can seem appropriate when you are in need of a more diverse portfolio or another company has the additional capabilities or products you require for growth. However, this thinking is over simplistic and does not account for the work involved with acquiring an entire company. The transfer of a company and all assets requires the integration of teams, processes, customers, and procedures that bring a plethora of challenges, especially if your company is not staffed appropriately to handle the additional workload and special situations. Your company must consider the amount of time and resources that completing the process would demand before moving forward.
3. Is the company the right fit?
The next step is to determine the type of company to acquire. If your company has completed a strategic plan, review the sections dealing with avenues for growth and opportunity to capture the additional capacity or market share that would enable these objectives. If not, conduct an exercise to assess growth areas and then analyze how long it would take your company to build the capabilities and features that are missing. The questions you need to answer from these exercises are; If you use organic capabilities, how long will it take to get competitive with other companies in the market? Does the company have capacity internally to build something that is differentiated enough to get market share? Are there internal resources in place to build similar technology or capacity? If the answer is no, then start looking for a company that has the internal capabilities to complement the identified missing features. The company you acquire may be able to supply technology, built-in contacts and contracts, R&D thrust areas of interest, and trained employees to almost instantly create a larger and more capable company. The company acquired should have like business interests with strong finances, seasoned, trained internal talent, a client base, and a strong local management team.
4. Is the target company compatible?
Once you identify a company with the appropriate capabilities, the next step is to conduct research to ensure you know everything about the potential acquisition. You should meet with different companies in the space, use all available resources such as, “ProfitCents” to review cash flow projections, Ibis World for cost structure by industry and projects for growth, Reference USA to research the competition, Hoovers.com for market, customers, and competition, and if applicable, Simplemap.com or Census.gov for demographics. Don’t neglect to review other financial items of interest, and delve into their products, technology, customer service reputation, costs, along with "softer" considerations like culture, values, roadmap, and vision. An acquisition is like a marriage, and just because a deal makes sense on paper doesn't mean it will work in practice. Acquisitions are never clean and simple -- they are complex transactions with countless facets to consider. If the two companies have radically different leadership styles, it could be hard for employees to adjust to life under such different management.
It is also advisable that you meet with companies during the acquisition process, including the leadership teams, departmental teams, and be sure to visit the office(s). Get a feel for how the company operates, why it is successful, as well as points of weakness and opportunities. Success in acquisition requires diligent planning and an investment of time.
5. Does the fit feel natural?
Consider the ease of integration. It should feel like a natural fit for your company. Companies that develop an integration plan are typically ready to combine all aspects of the new business, including leveraging their product or capability. When creating your integration plan be sure to answer a few basic questions: Have we captured all the steps necessary to fully integrate the new company? Will it be prohibitively difficult? When and how should we unlock the value of the new capability? The right roadmap is key to achieving a smooth and profitable company acquisition.
6. Is everyone on the same page?
Finally, communication is key, internally and externally. A well-thought-out communication plan is indispensable for a successful acquisition. The worst thing for both companies involved is for employees to hear about the impending acquisition in the news. Make sure your company crafts messaging for both internal and external customers and that you have outlined the appropriate timing of press releases and town hall meetings. It is almost guaranteed that the acquisition will not go well if employees are blindsided. Timely and carefully planned announcements will get the acquisition off on a positive note and further the chances for success.
Acquiring a company requires investing time to create a well thought out plan. Think about whether this planning can be done internally or if seeking an outside expert to help guide you during the process would be beneficial. At Novelle, we can provide guidance during the planning stages of the acquisition through the merging of companies.
Rita Simmons is the founder and lead consultant of Novelle, where she provides business and research consulting to companies across a variety of industries. Dr. Simmons leverages her drive for innovation and excellence along with her extensive executive and military experience to help business owners grow their business, drive revenue, and achieve strategic goals. When you’re ready to take your business to the next level, contact Dr. Simmons at email@example.com or connect with her on LinkedIn.