Acquiring another company and merging it with your business can be the most efficient way to grow. But many acquisitions don't pay off and it's often management issues -- not market conditions -- that get in the way.
Here are eight key strategies that spell the difference between success and failure in mergers and acquisitions, no matter what the size of the companies involved:
1. Consider the fit. If two businesses don't have compatible goals and ethics, merging them can be counter-productive. This includes financial structures that can be merged, as well as compatible customer bases and corporate cultures that aren't radically different.
2. Listen to the seller. Money often isn't the deal-breaker. If you can satisfy the seller's non-financial concerns, you'll have more negotiating power and the deal will go more smoothly.
3. Hit the books. Thorough due diligence is essential and requires a knowledgeable and relentless approach. Besides careful accounting, spot check with customers, chat with vendors and employees and talk to the neighbors. The more you know, the fewer surprises you'll encounter.
4. Develop a game plan. Long before the purchase agreement is signed, there should be a detailed road map in place for joining the two operations.
5. Trust your gut. Even when an investigation makes the details look good, if the deal doesn't smell right, don't be reluctant to back out. Like gambling, you have to know when to walk away.
6. Pick a team. Before you announce the merger, know who's going to be in charge at the new company. That person will need plenty of time to focus on the task at hand and won't be able to just add these duties to current assignments. Make sure that person has plenty of time to devote to what can be an arduous task. Don't automatically get rid of the acquired company's old guard. Evidence shows that their experience provides stability and helps navigate the shoals.
7. Consider the culture. Little things like who gets invited to a company party can throw a merged operation into a tizzy. The more you know about the acquired company's culture, the more likely you can head off potential explosions.
8. Talk, talk and talk some more. Controlling rumors among employees, shareholders and vendors is very important. Be open and honest in telling them what they need to know in order to feel secure enough to go about their business.
Before entering into negotiations, consult with your tax adviser about:
Assets versus stock. There's a big difference between an asset deal and a stock deal. Your company may wind up with unknown, costly liabilities if the transaction isn't structured properly.
Tax implications. Some expenses incurred in buying a business must be capitalized, while others can be amortized or currently deducted. Handling the sale in a tax-wise manner can save your firm in the long run.
About Romanchuk & Co.
Romanchuk & Co. is a boutique investment banking and CPA advisory firm, dedicated to providing candid, independent, and sound financial insight and consulting services to lower middle market companies and their owners. With a focused expertise in energy, power, infrastructure and oilfield services, construction and niche manufacturing, we specialize in sell-side M&A advisory services, advising owners on the preparation and sale of their company, assisting them in identifying strategic opportunities and then helping them to execute upon those strategies. Through our CPA advisory practice, we provide independent business valuations, financial due diligence services, forensic accounting investigations, litigation support and restructuring advisory services.
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