Although you may be tempted to talk selling price right away, be patient. Focus on looking at the seller’s customer base, financials, and pricing strategies. Will the customer bases of both organizations mesh well? If there is overlap, what potential conflicts may develop within the sales staff? What does the balance sheet show about assets that may need to be liquidated? Is the seller’s pricing methodology complimentary to and acceptable within your company’s structure? Verifying compatibility in these areas is key to the deal’s successful outcome.
4. Negotiate the Deal
If the information collected so far yielded positive results, it should be time to tackle deal negotiations. Of course, there are additional questions you need to consider in this phase. Can the seller get a better financial deal elsewhere? Is the seller financially troubled and, therefore, anxious to get a deal done? If a bankruptcy situation is looming, how great is your risk of losing the seller’s book of business? Does the seller have significant debt or personal guarantees that must be satisfied as part of the deal?
Considerations like these make structuring a tuck-in difficult. As the buyer, you have to enable the seller to liquidate his or her balance sheet, perhaps assisting them with a game plan to dispose of equipment or building commitments in order to pay off his/her creditors. We’ve seen buyers agree to pay the mortgage or lease payments on the seller’s building for 12 months, enabling the building to be quickly put on the market while providing the seller with a 12-month window to get something done. In another situation, one of our buyers realized that a tuck-in would improve his bottom line by $500,000 a year. He was thus willing to buy the seller’s press, knowing he might take a hit of $100,000 when he resold it, but projecting he would make that money up in the first year. The point here is that if the deal is really strong from the buyer’s perspective, he or she needs to be creative to help the seller over the hurdles and keep the transaction moving forward.
5. Due Diligence
Prior to signing the final contract, prudence demands that due diligence be completed for the protection of all parties. Depending on the structure of the deal and the entities involved, due diligence may include labor contracts, sales or income tax issues, environmental considerations, insurance and liability coverage, debt resolution, employee benefits, and even marketing brand considerations. Third party legal and CPA counsel may be beneficial here, and contract language may be altered several times by one or both sides before the deal can be finalized.
6. Circle Back
Mergers and acquisitions can be complex and frustrating, but they can also yield excellent business growth opportunities. Remember the circle graph image we mentioned in the beginning of this article? The fluidity of this circular approach lends itself to a logical progression of steps, ensuring that concerns and details are addressed at appropriate times. Then, should something go awry in this process, the “circle back” technique allows you to step back and regroup on any sticking points.
Yes, successful acquisitions take time, patience, careful planning, and above all, finding the right “fit” between buyers and sellers. A good deal occurs when both the buyer and seller feel as if they gained something. Sellers might see a more promising employment option than before and/or receive royalties or cash out on the sale; whereas, buyers can benefit from business growth and new market penetration. When done correctly, thoroughly, and fairly, all parties benefit from a win-win acquisition situation. PN