Strategic Acquisitions in an Evolving Economy

Strategic Acquisitions in an Evolving Economy

by Rick Dennen, Founder & CEO

https://www.oakstreetfunding.com/business-acquisition-loan/

Deliberately planned acquisitions typically offer the fastest, most efficient way to increase income quickly and provide a strategic way for owners to take their business to the next level. As we start to enter a post-pandemic society, pivoting to factor in a changing economy is critical.

Let’s examine some of the factors that can make or break a strategic acquisition in this evolving economy.

Strong market. The merger and acquisition environment continues to be extremely active, and there’s a good chance that trend will continue. However, keep in mind this activity can drive up the price of an acquisition.

Aging business owners. The Baby Boomer generation is well on the road to retirement, with the first Boomers already qualifying for Social Security benefits. While some want to work as long as possible, many are retiring early to pursue hobbies or take on new, more satisfying roles.

Your team is hungry. People like to be challenged and to succeed. An acquisition can take employees out of their daily routines and inspire them to do more by linking incentives to the success of the acquisition.

Seek expertise

When it comes to acquisitions, it is critical to tap into knowledge and advice from a variety of experts. Build a team of experts, including your accountant, lawyer, financial advisor,

and, most importantly, an investment banker. Keep them involved throughout the entire process, as their different viewpoints will be valuable to better navigate the ever-evolving business landscape.

Perform due diligence

If there’s a single secret to a successful acquisition, it’s exhaustive due diligence. Failing to do so is a key reason why many acquisitions fail. Protect your financial interests and professional reputation by answering these questions:

How do they do business?

Along with working with the owner, check business references and perform extensive research to turn up any irregularities.

Why are they selling?

There are many legitimate reasons for putting a business on the market, such as retirement or succession planning, but some sellers may be trying to dodge financial or legal issues. Do your homework to avoid discovering financial or legal liabilities after the deal is done.

How are the numbers?

An accurate valuation is critical. Don’t settle for pro forma financials. Have your accountant compare actual tax returns, compute ratios and margins, and examine the level of non-operating expenses. Watch for nonrecurring items that might artificially inflate income levels.

Are you compatible?

Do you manage business in ways that are similar to the current owner’s philosophy? Are the company cultures compatible? Will the employees of both companies be like-minded? Since the answers are seldom quantifiable, you’ll have to rely on your observations and instincts.

The critical transition

The transition between owners is full of make-or-break moments involving employees and clients. Internally, employees want to know their jobs are secure, and that they will not face significant changes in their work environment or culture.

Frequent, relevant communication is key to staying in front of disruptions in work. The more time you devote to getting to know your new employees and sharing and involving them in your plans, the less uncertainty they’ll face.

If you’re combining office staff, give everyone a chance to get to know each other outside of work. Also, give employees the time to visit each other’s offices and discuss their work and share best practices – customer service, retention, sales, etc., that are outstanding in each.

Externally, clients want to be assured that their relationship with your business will not suffer any disruptions and that the acquisition won’t create any hassles for them. Focus on getting to know existing clients and reassuring them that they will not have disruptions during the transition.

Funding

In addition to all of the above considerations, you will also need to find a lender who has the capacity to fund the transaction and will partner with you for the long run. The best way to do this is to find a lender that handles the entire process from application to closing in-house.

Acquiring a new company will provide many emotional ups and downs, but if done with diligence, a strategic acquisition can lead to rapid growth and continued success for your business. �