Knots, tangles and hitches

Tuesday, March 7, 2017
The process of acquiring another company need not be painful for all the parties in involved. In my experience as an acquisitions advisor, there are few lessons I’ve learned that make the difference between success and failure when seeking and matching two companies.It is just as important to establish that the buyer has adequate financial resources to complete the acquisition, as much as establishing that the seller wants to part with their business. Have a clear vision and direction about what kind of target company will dovetail into the buyer’s company culture and business aspirations. There may be several reasons for wanting to acquire and expand one’s organisation. It may be geographical: seeking to create a brand presence in a certain region is easier to achieve if you acquire an established package of local expertise. Another driver is the desire to diversify into other sectors, offering businesses a wider range of options. 
 
The first step is to reach and speak to the relevant decision makers in the desired target companies to progress negotiations effectively. This may entail approaching companies that are not openly for sale. There’s no reason not to start the dialogue and make the suggestion of considering a sale; a skilled broker will engage on a more personal level, by telephone. My feeling is, if you don’t ask, you don’t get and therefore, there’s nothing to lose by making the first approach and creating an opportunity.Having the right message at this point, delivered with sufficient confidence and empathy may encourage engagement and consideration of the buyer’s offer.If the broker can communicate clearly what the buyer’s interest is, and that the transaction can be sufficiently financed, the likelihood of further discourse is strong. Despite being longer and riskier, the success rate with this method tends to be higher. A broker is less likely to disappoint clients because such attention to detail is expended to ensure the deal closes out favourably. 
 
I’ve also learned that there is also value in empathy and understanding the decision-making processes that the seller needs to go through when selling their company. It is never an easy decision to make, no matter how tempting the offer from a buyer. As any business owner will know, an entity that you have fought to grow, through lean and good times, becomes more than an asset; it’s almost part of the family. Deciding to part with a company, or even being persuaded to sell is a test of resolve and becomes a very personal decision. No one wants to be pushed or bullied and buyers should respect that.Good data is essential. Rather than estimating the value of the target company, it is vital that choices are reinforced with thorough research. Businesses are always evolving and researching their performance influences a successful outcome. Dig into financials - are they in debt, are they cash rich, is the company growing, how sustainable are their profit margins, what are the directors taking in remuneration and dividends?Don’t forget about the target company’s stakeholders either. Will an acquisition be well received by them? Will the vendors want to continue the relationship if an acquisition is on the table? The same applies to the existing management team – are they on board with the acquisition proposal and prepared to work together with the buyer’s company? A management culture clash would be obstructive and could cause a failure of the whole deal.
 
Regarding the buyer, are they looking for a certain size of company? Is their financial capability up to the task and should it be weighed up against certain options? For example, will an acquisition garner a higher return than investing the money in expanding their existing company model? In which case, an acquisition might be a wild goose chase because the potential for growth is right under their nose. Furthermore, the nature of shareholders give a few clues about a target company’s direction. Family run businesses that incorporate the next family generation into their shareholdings are less likely to sell. They’ve forged this business for the long haul and want to pass the company down through the generations.Research and transparency can enable a smooth transition from proposal to the seller’s exit strategy. By making business more personal, it’s possible to execute an acquisition search that is founded on respect and trust. In the end, you want to create a strong business pairing that resembles more of a merger of two successful companies than a soul-less addition to one’s assets.
 
 
James Metzger was interviewed for the article by www.thehrdirector.com