Making an acquisition can be a great way to grow your business. After all, you're buying an established operation with staff, assets and customer relationships.
But be careful to buy a company that's a good fit for your business and makes sense in terms of your strategic plan. You also want to buy it at a price, and with a financing structure, that doesn't put your personal or business finances at undue risk.
Here are a few suggestions to help decide if there is a good fit with current operations.
1. Is it the right business?
Go beyond financial statements and ask questions about the business. Start with the most basic: Why is the current owner selling? Is there a hidden problem or is the industry headed for a cliff? Is the company overly dependent on a few customers or suppliers? Is the business dependent on personal relations the owner has with key customers that could disappear with a change of ownership? Do the brands acquired fit and strengthen the current portfolio?
2. Is it the right price?
Carefully explore the history on what businesses are selling for in the industry and region. It's important to be disciplined about how much you pay, even if your bankers are willing to lend you more. Overpaying will reduce you're financial returns, lengthen payback period, and increase your risk of default.
3. Is it a good fit?
Make sure the business you're buying has a culture that's compatible with your own. Issues with management styles, operational philosophy, and how the business can be integrated with the existing business must examined carefully before moving forward.
4. Are adequate resources in place?
The financing of an acquisition should maximize repayment flexibility. Besides a loan secured on assets of the company, you could seek financing from the existing owner. Vendor financing usually comes with a reasonable interest rate, flexible repayment terms and no personal guarantees.
Management resources need also be in place to handle transitional issues to ensure an efficient integration of the business.
If you are in an acquisition mode, don’t hesitate to call on experts to assist in the deal. This could be a well-placed investment that could reduce overall risk of a bad deal.
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