Acquisitions hold plenty of attractions for ambitious entrepreneurs. Not only do they enable your business to grow more quickly than it could do organically, they can also give you a platform to enter new markets, acquire technology and talent, and even neutralise the competition. But they also come with plenty of risks.
Having acquired three businesses so far in my career, I know that getting it right isn’t easy. There are a host of factors to consider both before, during and after the deal, all of which can jeopardise your success. If you don’t do your homework, the whole thing can cause you serious headaches and irreparable damage to both businesses.
Here’s some of the lessons I’ve learned:
1. Due diligence: Do as much research on the business as possible before making an offer. That means going through their finances and developing a really good understanding of their revenue model. Also check their previous years’ tax returns, any employment contracts, client or customer lists, licenses and details of properties they own or lease. The more digging you do, the fewer nasty surprises you’ll face further down the line.
2. Get to know the key people: Make sure you meet and get to know the key personnel, particularly the executive team. With many businesses, the people are everything - they drive sales, growth and keep clients happy, which is ultimately what you’re buying. Spend time understanding who does what, their ambitions for the future and any concerns or issues that could derail your plans.
3. Don’t be worried about walking away: It can feel like once you get to a certain point, it’s too late to back out. But don’t ever feel pressurised into going through with a deal, if the terms aren’t right or you get a bad feeling about it - even at the last minute. Be clear about what you want and where you’ll draw the line in negotiations - then make sure you stick to it.
4. Have a plan in place: Your chances of success are greatly increased with a well thought out strategy for integration, considering both finances and people. From a financial perspective, analyse whether the model is working as well as it could, or whether you can improve it by cutting costs or increasing efficiency. When it comes to people, most of your new employees will want to further themselves in the new organisation, so show them how that can happen. What opportunities can you offer to keep them motivated and engaged?
5. Bring in HR expertise: If you don’t already have an HR specialist in your team, hire a consultant to help manage the people aspects of the process. There are so many communications and legal challenges involved and it can be very difficult to manage these without specialist expertise.
6. Make hard decisions fast: Unfortunately, mergers and acquisitions often involve redundancies, but it’s better to make these quickly so you can establish your new structure and move on. The same goes for staff who don’t fit with the new company culture, as negativity will bring the whole team down. Letting people go is never easy, and you have to follow the due process, but you need to focus on what is in the best interests of the business.
7. Cultural integration: The challenges of bringing two cultures together is the reason why many mergers and acquisitions fail. In my experience, rather than shoehorning the acquired company into your existing culture, it’s better to merge elements of the two, so as not to alienate people. Regular and transparent communication is also essential to ensure you bring everyone with you and achieve buy-in to your vision. You might think that staff know what’s going on, but you’d be surprised how much work goes on in siloes. You need to communicate your plans clearly, remembering to listen and take on-board feedback from those around you.
Research has shown that as many as 90% of mergers and acquisitions end in failure, which is a serious wakeup call to anyone thinking of embarking on one. Secure a good price and an acquisition can add volume to your business very quickly and cost-effectively. But it mustn’t be taken lightly. Above all, take your time, understand the potential stumbling blocks and have a realistic plan to overcome them.
Andrew Clough is founder and managing director of The Brew