Reviewing a company’s past performance is only worthwhile when you apply your findings to future results post-acquisition. With this future perspective in mind, here are five questions to help you consider the impact acquiring a prospect may have on your company moving forward.
- What do the past 3-5-year financials tell you about the company’s growth next year or the year after? It’s nice to see an upward trajectory in the prospect’s bottom line, but if you take a closer look and see the prospect has not invested in any R&D recently, you may want to have a more in-depth conversation.
- How will the two workforces operate in the future? Consider if you will integrate all or some of the workforces or if you plan to keep them separate. Start developing an integration plan during due diligence.
- Does the seller have an employee critical to sales that may leave? If so, make sure to lock them in with employee agreements and also consider how you will entice these employees to stay with you as the new owner.
- Does the seller have a warranty program that you may need to pay out in the future? Warranty programs can be big dollar values down the line. You may wish to structure your acquisition agreement accordingly to avoid being hit with an unexpected expense 10 years later.
- Does the seller have contracts that may expire? For example, if the seller has a very favorable pricing contract with a supplier of raw materials that you currently do not have access to, you’ll likely need to renew the contract. Consider if the supplier may or may not be amenable to renewing with a new buyer under the same terms and how this could impact margins in the future.
Successful buyers understand the importance of balancing past findings with future potential when reviewing prospect during due diligence. Use these five questions when evaluating prospects so you can select the best fit for your company.
Learn more about due diligence in our upcoming webinar “A New Look at Due Diligence.”
Date: May 23, 2019
Time: 1:00 PM EDT