Sometimes the key to reaching the next level of success involves no longer “going it alone,” and being merged with /acquired by another company. There are many ways this can be executed that can bring tremendous opportunity, growth, and synergies to a seller. The key is knowing what to look for in an acquirer and selecting the right buyer. To do this, there are important questions to consider.
Does the acquirer understand my business? Knowing this is key to understanding where your organization will fit strategically within the acquirer’s operations, especially if there are performance-based components to the deal structure. As a seller, you need a decent comfort level that the acquirer will know how to support you going forward and how to bring “hard” and “soft” synergies to the table. Otherwise, while you might be left alone, you might feel like an island.
Some industries are pretty broad; therefore, the buyer may have specific knowledge of a segment of the industry, but not necessarily the part you focus on. That can be okay, if the buyer recognizes that, thus making you more valuable to them. But if they don’t understand or admit that, it may not be a good fit down the road. You could get frustrated going forward having to explain your business to them constantly in order to get things done. An advisor with industry knowledge can help screen these candidates.
What is the acquirer’s track record with acquisitions? If part of your goal, as the seller, is to stay on board, you want to be comfortable that the employees and customers are – at a minimum – going to get the same level of care and support post-deal. Some acquirers can develop a reputation for being too focused on immediate earnings impact and get overzealous when it comes to implementing plans that can hurt the core business (e.g., customers, employees). Some refer to this as “gutting an organization.” Does the acquirer have a tenured customer and employee base? This is a good place to start asking more questions.
How is their balance sheet? A good advisor should be able to get a feel for this early on in the process and if necessary eliminate some candidates for consideration. It is important to know not only that the acquirer can fund the initial transaction, but the business going forward (e.g., A/R financing, payroll). An advisor can model or project what the combined companies will look like going forward. If financing is a major contingency for the buyer, it should raise a flag. Even if the acquirer is using stock as consideration for part or all of the transaction, this is still critical to know.
How are the acquirer’s infrastructure, internal processes and methodologies? Are they scalable? Are they tested or proven? Will they create synergies or add expense? Sometimes sellers don’t spend enough time upfront in their reverse due diligence on these areas and they make assumptions, which later prove to be incorrect, and then the frustration begins. A good advisor will be assertive in reminding the seller of these things and being knowledgeable enough to ask these questions versus just trying to get a deal done.
Finally, what is their philosophy? Not unlike a relationship or marriage, this point can be overlooked a bit in the decision-making process. Again, each party should do its proper diligence, including getting to know the other party outside the office, even over dinner at their home. This helps you determine: Can you trust them? Do they care about your employees and customers? These are important questions to ask and get comfortable with to ensure it will be a good deal.
If you are considering a strategic M&A decision to explore acquisition opportunities, an advisor can help you ask these questions and more, and give you sound guidance on an acquirer’s answers. Selling is often the way to grow, reach new markets, and meet goals. With experienced guidance, you can pick the right buyer.
Steve Pomeroy is the founder of Big Change Advisors, a unique M&A consulting firm in Los Angeles that helps businesses achieve big goals while making a big impact on society. To request a free consultation, contact us.