Acquisitions and mergers are not just for big companies. Emerging companies can grow faster and gain more control of their destiny by acquiring synergistic competitors and suppliers. Acquiring or merging with another company sounds complicated, but it can be easier than you think with the proper guidance and leadership.
Start with an objective to find one complementary company that will strengthen your position in your market. Then develop and execute a strategy to make it happen.
When you have one under your belt, look for others. Like anything else, the first one is the most difficult, but you will be glad you took that first step.
Benefits of an Acquisition/Merger Strategy
This article provides some pointers on how you can make this happen, but first, let’s look at a few of the most important potential benefits from an acquisition and merger strategy:
- Removing your competitors from the game avoids costly price wars over customers.
- Reduced cost of sales and recruitment: In a single transaction, you can add a significant number of new customers and usually gain some very good employees; be careful to pick the ones who add value to your operation.
- You may gain new technologies and process ideas that can boost your own operations.
- Acquiring companies in your supply chain gives you more control over your own destiny; you set pricing on the products and services you need because you own the channel and you are no longer at the mercy of others.
Finding Likely Targets
- Your top two or three competitors are the best place to start because they usually have similar customers and employees, so there are natural synergies. Consider both mutually beneficial mergers and outright acquisitions.
- Also consider smaller competitors that are weaker and more vulnerable.
- Look up and down your supply chain for points of weakness that you can strengthen with a strategic merger or acquisition.
How to Approach Targets
- Do your homework, gathering as much information about your targets as you can — their customers, suppliers, key employees, strengths and weaknesses. Do a SWOT* analysis on them just like you would on yourself.
- Keep your cards close to your vest until you are ready to move; keep your interest in the targets within a very tightly controlled circle.
- Look for third-party verification on all information you collect; strengthen your knowledge with multiple cross-verified data points.
- Depending on the situation, you can approach them directly to show your interest, send an intermediary on your behalf, or authorize a third party to make an anonymous inquiry.
- Pay careful attention to technologies, software and process issues, because they can cause many problems if not managed properly.
- Watch out for problem employees and customers who may want to undermine the transaction; seek legal advice when necessary.
- If you want to keep key employees, make sure they are on board with the transaction and have incentives to make it all work smoothly.
Also, consider leveraged buyouts using the cash flow from your target to bankroll the buyout.
Depending on the size of the transaction, you may want to have an independent accountant (CPA) audit the financial statements you are relying on. At the very least you should have the financial statements reviewed by an independent accountant.
Engage an experienced advisor to lead and guide you through the process.
*SWOT: strengths, weaknesses, opportunities and threats (http://www.quickmba.com/strategy/swot/)
Contributed by Frank Dane