By nature, business leaders are always onto the next thing and acquisitions pose such an exciting opportunity, it’s impossible to NOT be interested. But, like all great opportunities, acquisitions are tempered with great risk. Having been in that position, faced the highs and lows, and lived to tell the tale, here are my top tips for taking on the challenge:
Is bigger always better?
Acquisitions carry a high rate of failure – that’s a fact. It’s also true that expenditure can be extensive without guaranteed return. It’s my firm belief though, that smaller businesses should not be afraid of being bold and aggressive and getting stuck in. In fact, consolidation and acquisition on a smaller scale can be more beneficial to the business than it can be for larger outfits. Smaller companies can retain a level of versatility and responsiveness that is an asset in the quick-moving, increasingly tech-reliant business environment. Acquisitions help independents and start-ups grow, work more closely with affiliates, find new connections, and be reckoned alongside market leaders. From my own experience -IglooBooks has recently acquired a French publishing company, Elcy Editions – it’s a great thing to do, not least for your reputation with your competitors and clients.
Speed to Market must be your mantra
Small business start-ups generally evolve and grow naturally (irrespective of the recent slew of venture capitalists playing start-ups like market positions). Successful entrepreneurs will resolve to drive the growth they want to see. Those years of building contacts, expanding routes to market, learning your craft and gaining experience as a business owner are crucial. It’s clearly possible to sustain organic growth through high quality production values and tenacious sales.
When an acquisition becomes a financially viable option, many business owners are justifiably excited by the prospect. What’s more, I found that opportunities began to present themselves once I had an eye open to them. Think strategically about what a new business would add to your current set up. A purchase is not viable unless your speed to market is improved substantially in some way: the acquisition could open your market in new territories, or give you access to a new range of customers; it could radically improve your distribution network. If you can accurately identify a clear objective to be met, the chances of uncovering a successful acquisition prospect are much greater.
Knowledge is Power
What’s really important for business owners is that if you are keen to expand through acquisition, then you should lead AND drive that transaction. Make it your goal to fully understand any companies you have an interest in, and become familiar with their products and services. Throughout the acquisition process, familiarity is the single greatest tool for success. Be transparent and understanding in your approach, but most of all be straightforward – make it clear you are happy to talk and interested in purchasing.
Gently does it – you’re sleeping with the enemy
The process of an acquisition – from opening discussions, through negotiations to practicalities – is a very sensitive business. Only one in four acquisitions come to fruition – in no small part directly related to the fact that so much is dependent upon good working relationships. For an acquisition to work there is by definition an element of teaming up with the competition. The only way to manage this relationship successfully is to be as supportive and sensitive to your opposite number as possible. There is every likelihood that you will have worked together before the acquisition process, and it’s really important to draw upon this professional relationship and deepen it as far as you possibly can. If you have no previous history, create one. It’s like winning a new client, every gesture counts.
Keep staff in the loop
Our acquisition of Elcy Editions came after the death of the CEO, a dear friend of mine. This perhaps invested our venture with an even greater destabilising element than a traditional acquisition. The business principle remains the same though – we had to work hard to communicate the transition effectively and considerately to staff. It’s my belief that to alleviate any concern, buyers should explain those key issues that staff will want answering: management structure/suppliers and job security. These issues should be decided prior to a deal being announced.
Due Diligence: An essential
Due diligence, as everyone knows, eats time, man power, and cash. However, it IS truly essential. Due diligence is your one substantial opportunity to mitigate risk. If a survey on a home you were buying revealed structural problems that resulted in the collapse of the sale, you’d consider yourself to have had a lucky escape. Due diligence MUST be viewed in a similar way – a necessary cost in order to avoid unwise investment. Spend in order to ensure a thorough service, because whatever the outcome, the expenditure will always be worth it.
Prepare to dodge a few bullets
With a venture of this nature, something unexpected will always crop up. Business owners should enter into negotiation wise to the fact that merging two companies is likely to throw up a glitch or two along the way, and time will be needed for the dust to settle.
This isn’t something to be afraid of – it’s something to spur you on. Splash out on your due diligence and be realistic about the effect of power structures and working habits of individual companies. Personalities can have a huge effect on how companies perform and work. The more aware you can be of this, the easier your job will be in identifying possible risk. Personalities, combined with unique laws and business customs, can have a massive impact on the success of negotiations, and you should be as clued up about these idiosyncrasies as possible.
Your second-in-command is key
Trust in your team and their knowledge too: ensure you have a team member working as closely on the project as you, utilise their expertise and experience. It’s also really important to have shared in-depth knowledge, so you can sense check documents and strategy properly and for the provision of a priceless second opinion.
No work is wasted
You can’t plan an acquisition. You can check out the competition, assess the strength of markets, and research into companies that look like potential purchases, but you can’t really plan for it at all.
That’s not to say that research of this nature is ever wasted, it’s all useful information to have to hand. Even failure helps you grow, especially where business ventures of this kind are concerned – it’s always good to have an eye on competitors and a feel for where the industry is heading. IglooBooks acquired a small packaging company (Brown Wells and Jacob) a while ago – it wasn’t a standout success by any means, but it was a hugely important learning curve to get us to where we are now with Elcy. Everything is research, everything is useful.
Acquisitions are tricky – but they are a fantastic way of expanding one’s business. It might be painful, take a lot longer than you think, seem like a scary risk when you’ve just made yourself secure, and it can go wrong – but it is a fabulous means of strengthening market share and profitability, and accumulating new resource. It’s worth it in the end.
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