In my over 20 years of helping companies grow through acquisitions, I can say the secret to a successful deal is having a solid, strategic approach to M&A. This is true for middle market manufacturers, technology startups, family-owned food and beverage companies, and divisions of publicly traded firms. Having a plan is the first step to success.
For those who have never executed an acquisition or undergone a proactive acquisition search, knowing where to start can be daunting. Below I’ve selected five important questions to help you jump-start your acquisition plan.
1. Why am I executing an acquisition?
This is the most critical question to ask as your answer will play a significant role in guiding your acquisition strategy. I recommend clients have only one reason for an acquisition to remain focused. Don’t skip this important step – Without a clear reason for acquisition, you’re better off not going down this path.
2. What is my risk tolerance?
Consider how much you are willing to put on the line and wiling to lose from a financial, people, and resources standpoint. Your level of risk tolerance does not reflect your chances of success or failure in executing an acquisition, but it is an important factor to consider. Understand how your organization makes decisions and handles risk is important especially because of the inherent risks (and potential rewards) associated with buying another company.
3. What am I looking for?
How do I define success? How do I identify a “good” company from a “bad” one? Be as specific as you can, even if you don’t see any companies that meet your ideal. In the early stages of planning for an acquisition, you are crystallizing the criteria for a “perfect” acquisition that can be used as a benchmark against live opportunities. At this stage, these metrics are not set in stone and can be refined as you move along the process and learn more.
4. What happens when I am successful with meeting with a company?
Am I prepared for a first visit? Deals lose momentum for all kinds of reasons from the owner getting cold feet to legal complications to tough negotiations. Fortunately, being prepared for first meetings and subsequent visits is one way you can proactively maintain momentum and keep both parties focused on executing a transaction.
5. What if a for-sale opportunity approaches me?
How will I respond from a valuation, due diligence, and integration standpoint? While we recommend clients consider not-for-sale opportunities, we also recognize the value of for-sale transactions. You should be ready to apply the same rigorous standards in terms of criteria and due diligence planning to ensure it’s the right fit. The temptation with for-sale transactions is to get caught up in the excitement and forget about our strategy. Thinking about the steps you will take prior to engaging a live deal will help ensure you remain true to your growth goals.
This list is by no means exhaustive, but should give you a few fresh ideas to help as you go about building the foundation to your M&A plan.