Top five factors entrepreneurs need to anticipate before considering an acquisition

27/04/2022

Going through an acquisition may have its benefits but the pitfalls are numerous and opaque

Your business might be booming. You might be approaching your goal of scaling up, achieving your long-term business success goals or looking to diversify into other areas or sectors.

One way to grow or pivot rapidly is via acquisition. But, like so many aspects of business, acquisition can come with both advantages and disadvantages.

Whether you are acquiring another business, or subject to an acquisition, there’s a plethora of factors to be carefully considered.

I’ve thought about this a great deal. Here’s my list of the top five factors you should consider during the acquisition process:

Retaining the essence 

Will there be a great meeting of minds, a beautiful synergy or a clash of corporate cultures? Will you lose the essence of your original business if you are acquired, or will you be allowed to continue with autonomy? Would you care? Think carefully of the short-, medium- and long-term ramifications of an acquisition, from both perspectives. If you acquire a business, will the cultures merge or clash? If you are being acquired, can you still retain a sense of your original vision and strategy – and would you want or need to?

Putting value on your values

Your business is just that – something that you’ve put passion, time and energy into. There are values in your business that your customer base has come to respect, and often a change of ownership – or acquiring a business with different values – can affect your relationships with customers and suppliers. Does the acquirer share your business values? Will there be cost savings achieved through economies of scale? What about cultural and language barriers? Ensure that throughout the process, you communicate clearly and honestly with all stakeholders – from the boardroom to the High Street – to avoid confusion and distrust arising.

The strategy

Whether you’re acquiring, or potentially being acquired, what’s the strategy? Are you looking to acquire a competitor to gain market share, or that rival company’s talent? Are you looking to acquire to gain a new business line? Acquisitions can be long and complex – it’s not something to go into lightly, and it’s certainly worth ensuring your team is clear on the reasons for your actions. Your wider stakeholders will also need to back your decisions, so take the time to ensure as smooth, transparent a process as possible. Business consultant McKinsey sees six types of successful acquisitions. Which one is yours? 

The timeline

Acquisitions always take time and effort. Have you factored in the time, effort and cost? Will you be able to successfully merge the businesses, while minimising time and effort? Careful planning is crucial to avoid holdups, bottlenecks and pitfalls. My research suggests you should allow a year for the process.

The bottom line

Carefully consider how the acquisition process might affect your financials. How might it increase revenues? Will it improve or reduce profit margins? Which company is growing faster? If you’re acquiring a firm that could slow your growth, this will affect your overall company value. Sometimes, a company may have hidden debts that only become apparent after an acquisition. Be wary of any company that seems overly keen on the acquisition process.

A third-party negotiator is perhaps the best tool you can employ when navigating the waters of acquisition. The overarching point to remember is that any process of taking over a company, or of being taken over, is complex and should be taken slowly, carefully and with due diligence.

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