Once you've done the analysis and determined the need, the next step is identifying candidates. Who are the companies that fit your need? In this internet age a lot of this research can be done online. A little more important though is how
good are they at what they do. What is their size? What is their value? Are they even interested in being acquired? These questions require a little more of a personal touch. This process can be done internally or at this point you may consider engaging an external professional service provider - called an intermediary. There are Investment Bankers and Business Brokers. The decision on which one to use depends on the size of the company that you are looking to acquire and as in any process with professional service providers, try to get recommendations and speak with a couple/few to make sure that your goals and working style is a good fit for anyone you would consider engaging.
One of the techniques for doing this is to identify the owner or CEO of the company and set up a meeting. This could be coffee or lunch, informal works well here. Start a discussion of how you might do business together at some point in the future. This can lead to interesting revelations and a way to gauge if they are in play.
If you have identified the candidate and determined that they might be willing to be acquired you would then begin preliminary due diligence. This is usually a high level look at how this company is doing and would require analysis of their financial statements, tax returns and supporting documentation. During this stage of the process you are looking for "red flags." A red flag is anything that you uncover that says "stop - this is a danger sign." A red flag can prevent an acquisition from being a disaster. Sometimes the best deals are those you don't do.
Assuming there are no red flags, the next step would be to begin negotiations. Experience tells us that is best if the principals are not directly involved in this process. Each has their own strong views that are usually not advantageous to the negotiating process. An approximate value needs to be determined by the acquirer. There are an infinite number of valuation methodologies that are many times industry specific. It is recommended that you get someone involved who knows how to value the company that you want to acquire. From experience, the value arrived at by the acquirer and that placed on the company by the target are NEVER the same. That's where the dance begins. Usually if the target wants to sell and the acquirer wants to buy an acceptable deal can be hammered out. When both sides feel they should have done a little better you know a fair deal has been struck. The valuation is another point where the intermediary will assist you or if you are managing this process on your own; you will probably engage a valuation firm.
Whatever the deal is, it is now dependant upon full due diligence. This is where the target gives you access to their complete set of books and records. You not only want to assess that these are all accurate and complete, you are also looking for compliance, hidden liabilities, compatible culture, legal exposure, regulatory filings, IT infrastructure, HR policies, payroll tax filings, corporate assets, ownership structure, employment contracts and anything else that could affect the future success of the acquisition.
During this process you should make sure that you have a good attorney, preferably one that has experience with M&A and a good tax CPA is always helpful in helping you plan tax issues/ramifications in advance.
At the same time that the due diligence is going on the integration plan should be developed. Is this going to be a stand alone unit? What about the branding? Will their employees be integrated with our employees. Are we going to put them on the same IT platform as us? Do we want management to stay? If yes, what about employment contracts, non-competes, key employee retention bonuses? How do we bridge the differences in benefits and compensation? What is the go to market strategy once the acquisition is completed? It is always helpful to have a "champion" in the acquiring company. This is someone who will own, and be measured, by the success of the acquired company. A lot of acquisitions fail because once the company is acquired management loses their focus on the deal. A champion will not let this happen.
Prior to the completion of the deal, a milestone plan should also be developed. This is something that details what results you want to see in three months, six months, a year, two years. It needs to be taken and reviewed at the appropriated time intervals to measure the success, or lack, of the newly acquired company.
At Nperspective we have CFO's who have lived and breathed this process and are willing and available to assist you at every step along the way. We have been involved in acquisitions ranging from $400,000 to $4 billion and everything in between.
Contact Janet Watson at jwatson@npcfo.com or 813.317.3460 for questions or to set up a complimentary consultation.
*Licensed in New York
