The truth is that there is no single way to make an acquisition successful. Every acquisition needs a plan that’s been laid out years before the sale of the company. Ask deal makers regarding the steps for acquisition of a company, and they’ll tell sellers that value creation is something they need to work on from the beginning, so that buyers will see the company as a worthwhile investment.
In this post, we’ll lay out the steps for proper preparation so that your company can smoothly transition once the time of the sale commences.
How is the current M&A environment in my industry? This is a question that a business owner must ponder and attempt to answer prior to setting goals. When they have insights on the landscape, they can adopt qualities that make a company attractive for sale as they progress their plans toward a sale.
Have there been recent acquisitions of companies similar to theirs? This is yet another question they need to answer to determine the challenges they might face. This initial research can be broken down into three areas:
Insightful market analysis leads you to discover your position for a successful acquisition. But don’t just look at readily available data. Read up on expert advice, articles, and white papers on that drive your industry and the broader economy.
In recent years, we’ve all witnessed how the current developments in technology have spread to all sectors. No surprise, then, that M&A environments are feeling the impact too, moving at a brisk pace. We’ve also seen how the needs of the market evolved, trends in various industries shifted, and economic conditions fluctuated.
Combine current data and patterns with expert insights to gauge the pace and scale of deals, both worldwide and in your sector. Are transactions thriving in your industry, or are they slowing down? When you hold the knowledge to address this, you will know how to:
Why are industry players pursuing mergers and acquisitions? You will not find a simple answer, and that’s why a sharp competitive assessment should be part of your initial research. You will likely notice patterns during your observation.
Companies dive into M&A for all sorts of reasons:
When companies are compelled toward deals, they become part of what shapes the whole M&A landscape. Other companies join in and take bold new directions: It’s either to acquire or to be acquired.
So, how do you get a handle on this? First, observe your competitors’ moves. Have similar companies in your sector recently sealed deals to outpace rivals or grab market share? What’s making these transactions take place, and what’s the payoff for both sides?
Address these questions by spotting the common denominators that fuel M&A activity. Then figure out how you fit into this puzzle.
Is there a deal-making impetus within your sector? Then it’s time to find out why they’re happening. Looking at industry trends that compel companies to buy or sell is a start.
No two industries play the game the same way. Let’s look at two major, thriving sectors:
Whether innovation, stability, or scale is the goal, these drivers are what create M&A movement and activity in your corner of the market.
Find out what the exact value drivers are. Are competitors merging with niche domination as the goal? Or are they trying to fend off disruption? Check out recent deals, say, in the last year or two. Then, spot the patterns. What’s the big win these companies are after?
How do you make your business a buyer’s top pick? Peek into articles regarding “how to start an acquisition company.” Remember: Buyers often begin by hunting for high-value targets like yours. They follow clear steps to acquire a company, like sizing up financials and operations. Get ahead by cleaning your books, streamlining workflows, and building partnerships to show a lean, irresistible operation that fits their playbook.
The insights regarding the market and your specific industry will now help you progress to the first step of preparing your company internally. And by internally, we mean diving into your financials, assets, and operations as well as looking at risks that could be costly.
Business owners might initially want a ballpark figure of how much their company would sell. For starters, it’s okay to use online calculators or the times revenue method, wherein you get the yearly revenue of your company and multiply it by an industry standard multiple.
But if it’s the value for setting your asking price, it’s not enough to calculate it on your own. A business valuation by an experienced broker or CPA is necessary to achieve an accurate figure.
Why do you need a professional? First of all, you need an unbiased professional to look at your books to determine whether they’re clean and accurate. Secondly, depending on the size of your company, a single methodology may not be enough to get the true company worth.
For example, if you’re a tech company that has been thriving because of what you’ve established as a brand, a times revenue method would not be able to account for the value of your brand. A sharp professional can use customized valuation methods to unearth what makes your business special, so you can make a solid pitch to buyers.
A well-placed asset management plan as part of business preparation before acquisition helps you maximize your asking price. Your goal is to align assets with business goals to display a lean, high-value operation that buyers can’t resist. Here are some quick ideas to turn into strategies:
A thorough risk assessment is necessary to prepare for due diligence. This activity can be summed up in the following points:
Find ways to address these risks, so that you’ll be prepared for questions from the buy side. Issues that cannot be solved during M&A should be discussed transparently with the potential buyer.
Central to the business is its operations. Make it a part of your goal to improve operational efficiency as a way to attract buyers and increase your company’s worth. What is slowing down your process? The moment you spot bottlenecks, find solutions and apply them.
Productivity improves as you speed up operations. Soon enough, you will see its benefits through production cost reduction.
Buyers want peak performance that comes from streamlined operations. This is because they see value when a business manages to cut costs on certain aspects of operations that are repetitive and wasteful. Some ways to achieve this are the following:
Global consulting firm McKinsey & Company observes three things that successful companies perform as part of their tech and process preparations prior to the M&A stage.
If your systems are messy or outdated, it can hurt your deal, because buyers can potentially see the system as risky. You might end up with lower offers or, worse, the deal might fall through. Getting your business ready for acquisition entails cleaning things up before you sell.
What makes a business attractive is when the business owner doesn’t need to supervise people in order for it to run. An owner needs to train every chain of command to establish a self-sufficient operation. With enough coaching and assigning them to clear roles, they can adapt to changes bound to happen once the new management takes over.
Collaborative effort is one of the many ways to make a business impactful. This is one of the efforts you need to work toward if you want to bring out true value in your company.
As part of due diligence prep, business owners need to identify stakeholders who have the skills and resources to increase the company’s value. Such partnerships should have arrangements that bring advantages to both sides, which can either be financial muscle or expertise. This shows buyers that you’re a valuable player with a solid network ready to drive a high-value sale.
Ask experts on how to prepare your company for acquisition, and one common advice they’ll give is to seek value-increasing collaborations. Seek collaborative opportunities to tap new markets without hefty costs, pool tech and expertise for innovation, and split risks to keep ventures steady.
Beef up connections with suppliers and clients to grab buyer attention. Collaborate on innovative products, streamline processes, or sync forecasting to save cash and risks. Strong ties signal a high-value, well-oiled operation that’s primed to fetch a top-dollar deal.
Finally, it’s time to prepare your employees for the upcoming deal. It’s too risky to admit upfront that you’re selling your company. So we recommend performing this in stages, beginning with your key people to help you align the company with your M&A strategy and gradually communicating with the rest as you maintain transparency.
Communication and Transparency
You cannot leave employees in the dark about the deal. Once you’ve decided to sell the company, one of the necessary steps to prepare for business acquisition is to tell a few trusted employees regarding the sale, especially those who can support you in adding more value to the company. Mention how much you appreciate what they’ve done for the company so far and how the acquirer would want them to stick around due to the importance of their role.
Make the official announcement company-wide once you’ve sealed the deal with the seller. Let them know you’ve chosen a trusted leader to guide them, ensuring the company stays steady with minimal shake-ups after the handover.
In M&A, leadership training is a must because the business owner needs to align upper management with the following:
The stakes are high, with tight deadlines and great expectations for leaders going through M&A, as its results will impact their careers and legacies. But the reality is that most executives lack extensive experience with complex or large-scale integrations. This might even be their first time going through such an event. As the business owner, your role is to boost their readiness so operations will run smoothly after the sale.
Three things could happen when two companies are not culturally aligned:
Both sides need to perform a cultural audit even before the sale closes. This can be done by gathering employee input. Tools such as surveys and interviews unearth differences in work styles, decision-making, or priorities.
This effort identifies similarities, and despite potential conflicts, leaders can come up with solutions to guide both organizations to a unified merger plan.
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