The Acquisition is Coming – Are You Ready?

Whether an eventual goal in your entrepreneurial destiny, or a surprise offer stemming from your business’s impact and success in the market, a potential acquirer of your business may approach you about selling your company. But there’s a question, and it remains the same either way: are you ready?

The acquisition process can be quite an involved one, even when you have been approached by the buyer instead of going to market to seek bids from multiple acquirers. And indeed, most business owners have not been through the process and need guidance on how to value their company, negotiate with buyers and how to navigate the due diligence process. Because sometimes deals fall through, when you are not prepared for your company’s sale.

So, whether you have already been approached by an acquirer or want to be ready, let’s review a few pointers here, to both take the edge off – if you’re new to the process – and to help you fine tune your strategy. Fundamentally, though, this is somewhat of a quick checklist to help get you and your business better prepared for sale.

What is an acquisition and what are the different types?

An acquisition is simply one company being purchased by another by selling more than 50% of its assets ownership interest, in a highly coordinated and strategic transaction. This process usually follows one of three structures, namely: a controlling stock purchase, asset purchases, or a merger between companies.

Further to this, an acquiring business makes the decision to enter into this transaction, to achieve one of three acquisition strategies.

Market Expansion

These occur when a very large corporation seeks to obtain new products or services to sell to its customers, and yours.

Market Concentration

A market concentration acquisition is a strategy for purchasing a company with a similar product line – most likely to increase market share.

Vertical acquisition

This acquisition is done through integration – backward or forward – to better control a supply or distribution chain.

Why would another company approach you to  make an acquisition?

The above indicates somewhat why a company would choose to acquire another, but there are usually three main purposes to doing so – it’ll behoove you to know these, for a clearer understanding of why your business would be the target of an approached acquisition:

• Timing – business buyers that approach you have a specific business plan, including key milestones for how they will grow their own company;
• Capital – again, an acquirer with strong access to capital – either from operation profits, an investor or inexpensive bank debt will seek to get a return on their cash; or
• Management – larger companies with strong management often look to leverage their teams buy acquiring companies to give them greater scale to utilize their capabilities.

How to prepare for an acquisition

So, we’ve talked about the acquisition process, and why a company may be wanting to acquire another. Let’s move onto the nitty gritty, because if you’re reading this, you’re thinking about selling yours, or even better, you’re already in the crosshairs of potential buyers, for an approached acquisition.

Here’s how to better prepare your company for a sale:

Have a vision

In matters of acquisition preparation – as with many life-changing decisions – you must look out for number one. So simply, what do you stand to gain from the sale, and how do you want it to be implemented? Look beyond the monetary factor, because at the end of the day, the event may affect your career, your family’s well-being, and the vision you’ve established within the business from the start. So, consider the values and the culture of the acquiring entity, and how these align to those you’ve so carefully nurtured-in the business you’ve built. Once you have clear vision of what you’d want from the deal, the pieces of your sell-side strategy should begin fall into place.

Tackle your own due diligence sooner, not later

You have to clear the company of its skeletons. And by this we mean doing your own due diligence. Fiscal and legal matters and performance discrepancies compared to your industry are what kills deals. So, pay the taxman on time, make sure your financials are crystal clear, and manage or mitigate any past operational issues with a clear fix, or a candid acknowledgement. Your acquirer will do their own due diligence, but if you’ve got nothing to hide from the start, the deal should go much swifter.

Bring in some hired guns

M&A advisors – namely, Destined, lawyers and tax experts are needed to help lead you through the process to acheive the best sale possible to achieve your personal and financial goals.

At Destined we’re energized by the acquisition process and the momentum it creates to move organizations forward, and more importantly, we’ve done this all before,  and we’ve sold our own businesses.

There it is – how to undergo acquisition preparation, for the most beneficial sale for you, your buyer, and the people involved with the amazing business you’ve built. For more on how to better prepare for a sell-side acquisition, contact Destined today.