Strategic Acquisitions: Questions to Ask Before You Begin

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September 1st, 2019
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You’re planning for new growth. In the past, this has meant adding more key staff members, who can lead you to new and diverse capabilities, which in turn lead you to new markets and new clients. Then you have a radical idea. What if instead of trying to grow organically from the inside, you decide to grow by finding a company to acquire. Is that a great idea? A crazy idea? Both?

Going forward requires an incredible amount of dedication to the process and a commitment to the time it takes to work through it. But step one is to make sure it’s the right move. Consider these two factors.

The people factor: A business with very high hiring standards may reach a point where they just can’t find enough people for their business. You pride yourself on a culture of high-performing people with high-level skill sets, and then find that they’re very tough to find or woo away.

The growth factor: Companies recognize that there are capabilities, new markets, and new niches that can enhance the core business, and acquiring a business that already has all of these characteristics makes financial sense.

A strategic acquisition makes sense if, after you’ve done your due diligence, you’ve determined that:

  • It’s too costly to build the capabilities internally.
  • Acquisition will enable and promote healthy growth of your company in a way that your current core business cannot do.
  • The business comes at a fair price.
  • The people who come with the business:
  • Are up for the challenges ahead.
  • Have capabilities and new ideas that will help you innovate and grow into new markets or new niches.
  • Can connect the business to new relationships that will translate into new customers and investors.

There can be downsides to bringing people into the company this way. New members may leave because of the acquisition, and some may simply not fit your company culture.

Keep in mind, it’s also important to be the kind of company that’s capable of an acquisition. Some of those characteristics include:

  1. Your company is financially solid. Are you in good shape with financial assets, lack of debt, client base, equity in equipment, and so forth?
  2. Your company is based on a proven business model. 
  3. Your management and executive teams are strong.
  4. Your company has access to capital. The borrowing capacity is a must.

It’s critical to do your financial due diligence to make sure an acquisition makes sense, and then, plan for all the capital you will need. Brigade Bookkeeping can help you assess and plan for a strategic acquisition. Let us know how we can assist you!

 

Sources:
When a Strategic Acquisition Makes Sense” by Karl Stark and Bill Stewart

Growing Your Business with Strategic Acquisition” by Prairie Capital Advisors, Inc.

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