How To Grow Your Business Through Acquisitions
As a business owner, you know that your company won’t last unless it experiences steady growth. One way many organizations are growing is through business acquisition. For example, companies may expand their products and services or consolidate fragmented supply chains through the acquisition process. However, several factors increase your probability of success during this process.
Establish Acquisition Criteria
Your first task should be identifying the types of companies you are interested in acquiring. You need to define the criteria that you are looking for. Once you have identified what you are looking for and why you can create a deal flow that works for you. Find your prospective acquisitions through proactive marketing rather than sitting back and expecting deals to come to you. Also, consider avoiding auctions. Instead, create a dedicated acquisition strategy that will provide you with a better value.
Review the Regulatory Environment
Next, you should investigate legislation or regulations that may affect your acquisition. For example, are any bills pending that may impact your deal? Research trade associations. They will have updated information on current and possible future laws, which increase your risk and could devalue your deal. Look for industries with stable regulatory environments.
Do Your Due Diligence
You need a specific due diligence process for any transaction you pursue. To gain the greatest value and reduce your risk, you need to know everything you can about your prospective acquisition. Learn about the management team and their talents. Look over the operating structure. Find out about the technologies, patents, and other assets the company has. Identify any barriers to competition. Review company data to determine its customer concentrations and the revenue they represent. Analyze the company compared to its competitors.
Pay Attention to the Financials
Don’t overvalue your targeted company. A successful business acquisition is based on getting a high-value company at a reasonable price. Don’t buy on emotion. Stay focused on the numbers. Conduct diligent financial analysis, including expected return on investment and payback period, and negotiate based on the numbers. Also, avoid overextending yourself by analyzing your company’s financial position and ensuring that you aren’t carrying too much debt.
Create an Integration Plan
Identify your integration goals, and address any risks. Investigate the talent on both sides of the deal. Set milestones so you can measure where you are in the process and your level of success. Use key people from both companies to create an integration team. For example, include individuals from sales and marketing, operations, legal, finance and accounting, human resources, and IT. As you analyze your progress, make adjustments to your plan if needed.
You need to consider several issues during an acquisition, but a fully developed strategy and integration plan will give you the best chance of success.