Acquisition is an increasingly popular way to grow your business in today’s economy. The acquisition can follow the traditional “cash at closing” formula, in which most of the seller’s assets are part of the purchase, or it may be a tuck-in situation, in which the book of business—the sales—may be all that is acquired. In either situation, we have found the success of the acquisition process follows the same six-step circular process:
Develop an acquisition strategy.
Identify and contact the target companies.
Review the information.
Negotiate the deal.
Perform due diligence.
Circle back before you close.
Think of the process as a circular flow chart. When one step is completed, you move on to the next—but be patient. Because there are so many factors in an acquisition, it is possible to just keep “circling back” through the process until you finally close a transaction.
1. The Acquisition Strategy: What Do You Want to Accomplish?
Before you buy, your first step should be to identify why you are looking for an acquisition or tuck-in. Do you want to grow revenue through acquisition rather than organically? If you have under utilized equipment, acquisition is a good way to achieve that growth. Perhaps you want to move into digital printing, warehousing and fulfillment, or cross media services. Acquisition may be a strategy to leapfrog some of your competitors and accelerate your entry into new areas.
2. Identify and Contact the Target
When your Acquisition Strategy is in place, it’s time to initiate your target company search—but where do you begin? We’ve found local PIA chapters to be one excellent resource for acquisition searches. You simply tell them what you are looking for, and ask if they can suggest someone to call. Another option is to use an independent third party like us; someone experienced in the M&A market and the printing industry. A knowledgeable third party can potentially reach a broader market, then assist in a focused search effort that reflects your acquisition strategy. This can save valuable time and frustration, as well as help you zero in on potential companies or industry segments that best meet your specifications.
After your target companies are identified, determine how to contact them. It may be a natural thing to simply call them. If that seems awkward, it may be beneficial to have a third party make that contact on your behalf, keeping the initial playing field emotionally neutral.
As terms develop, emotions and demands can flair. A good negotiator or intermediary keeps the process moving.
3. Review the Information
Once conversation has been opened with a target seller, it is imperative to find out if a good “fit” exists. Some key ingredients to assess here are the personalities of the owners and the company cultures. Cultural compatibility can only be ascertained over time by talking to the owner(s) and the management team. It is important to put aside whatever image and reputation the seller has in the marketplace, and look at them and their company with fresh eyes to see what matters to them, as well as how and why they do things. If the situation is already looking like a “square peg, round hole” scenario, walk away and find another deal. Nothing can kill a deal more quickly than opposing cultures, or be more disappointing than completing a transaction and then realizing the merger cannot be successful because of cultural issues.
In addition to verifying cultural compatibilities, it is equally important to be sure you clearly understand what the other owner is looking for from the deal. Does the seller want to continue in a management role, or does he/she want to forego the leadership burden and simply focus on sales? Are there “sacred cows” to be considered—those family members or key employees the seller feels need to be a part of the new organization? As a buyer, you need to know what you can live with for the short term, while the seller may need to accept that a son or a sister may no longer be part of the new organization.