The many highs and “woes” inherent in a successful acquisition were the focus of a panel discussion of business owners who shared their personal experiences at the Business Value Forum at Bryant University on Sept. 17.
They stressed the importance of maintaining strategic clarity and focus in determining the advantages of pursuing an acquisition strategy, performing due diligence on the company being acquired and the challenges with culture assimilation.
Ryan Kim, owner of Organic Dyes & Pigments, in East Providence; David Murphy, president of Contractors Supply Inc., in East Providence; and Bob Israel, president of Sandvik Publishing Interactive, in Danbury, Conn., discussed their most compelling lessons learned in the acquisition process.
Of course, individual reasons for an acquisition vary widely. The panelists sought to drive the top line by increasing the customer base, broadening the product offering to add more value to customers and eliminating redundant operating costs to drive the bottom line.
The overall goal comes down to the resulting company establishing a more dominant, leveraged position in the market they serve.
It is important that the business owner have a clear strategy for why an acquisition would benefit the company. Too often this part of the process is not detailed enough and, as a result, the criteria for identifying acquisition candidates is misdirected.
There are many risks that present themselves on this journey and it was strongly suggested that business owners surround themselves with a good foundation of advisers beyond the company’s lawyer. M&A gurus often know how to investigate underlying issues within the seller’s company that would be detrimental to the buyer if not dealt with during the negotiating process. One vital question always on the table is: Why is the seller really selling?
Panelists also stressed the importance of addressing the key issues first in negotiations, rather than getting sidetracked by minor issues. They encouraged acquirers to delve into and assess business relationships with key customers. Each presenter had experienced the angst of deals breaking down at the 11th hour because key issues were not resolved early in the process.
Integrating cultures … is the Achilles’ heel of many post-acquisition deals.
Getting a good sense of the target company to be acquired often includes getting access to all phases of the operation and reviewing key customer lists in depth. Because there is always the tendency for the seller to overpromise and under-deliver, buyers should be conservative in their estimates during the negotiating process regarding the acquisition’s impact on the company, especially in the short term.
While all presenters were surprised at the robustness of the process required to peel away the onion on any acquisition candidate, they agreed that open dialogue between the buyer and the seller is vital. In some instances, business brokers can get in the way of free-flowing conversations with an acquisition candidate if ground rules are not established early.
Beyond the balance sheet, integrating cultures is where the rubber meets the road and, as a result, is the Achilles’ heel of many post-acquisition deals.
Culture change butts up against the, “We have always done it THIS way” behavior. Change is often a two-way street because each company can bring positive operating procedures to the table. However, business owners are well-advised to have their house in order regarding core values and processes before launching an acquisition strategy. As two cultures integrate post-acquisition, there is always the reality that some employees will need to be rationalized within the acquired company. It was suggested that a 60-90-day period be implemented prior to any terminations because a severed longstanding relationship can have a negative impact on employee and management motivation. n
Larry Girouard is president of The Business Avionix Co. in Newport. He is also a Business Value Forum Inc. board member.
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