When it comes to acquiring a company, nothing is ever simple. Whole teams and divisions invest thousands of hours developing plans and, even so, there is no guarantee that the deal will go through.
Despite that, over the last three years, we’ve successfully done it not once but five times. Including acquiring our most established competitor. So, what’s the secret? Here are five principles to consider when developing your next corporate acquisition plan:
1. Get the lawyers out of the room
When negotiating any major deal, there is no doubt that lawyers are a fundamental part of your arsenal. You won’t get the deal you want without an exceptional legal team supporting you.
However, lawyers, especially good ones, almost always complicate even the simplest of issues. Like it not, your legal counsel is paid to distrust people, which ultimately protects you and your investment, but can quickly make the negotiation come to a screeching halt. So, getting the “lawyers out of the room,” and having a direct and earnest conversation with the sellers will move things along much faster.
CEOs and Entrepreneurs take a very different approach to lawyers: we like to get things done and tend to have higher-than-average risk-tolerances. Insisting on these “CEO to CEO” meetings will bring you and your counterpart closer to aligning values. This is a crucial first step in establishing the necessary trust to, eventually, close the deal.
Of course, once you have broken through and you feel confident that a deal will happen, it’s time to allow the lawyers to do what they do best and to work out the more delicate details of the agreement.
2. Expect best, prepare for everything else
In many ways, acquiring a company is not that different from any other major purchase. Sellers are of course, biased. To convince you to pay the highest possible price, they will give you all the good news before the deal. As for the reality; you’ll have to figure that out on your own once the keys to the company are yours. Being prepared for potential issues can make the difference between a winning acquisition and a total flop. To mitigate against this, keep in mind the following:
- Factor potential setbacks into your Business Plan, to make sure you get a price that you’ll be happy with despite the challenges. As a principle, we always project a decrease in revenue and earnings in the year after the acquisition.
- Make sure your Share Purchase Agreement (SPA) includes as many safety nets as possible to protect your investment.
- Be emotionally prepared for some bad news, so you won’t waste all your energy on surprises or disappoints. Instead, focus on solving whatever problems you uncover as you discover them.
3. Focus on the team
A business is more than a bunch of people and the tools they use to get their work done. The tools don’t matter, but the people and the “big idea” they believe in do! However, identifying the right people to build the future success of the company, can be complicated. Knowing how to motivate them, how to get their buy-in on a shared vision for the future and how to handle team member departures is tricky if not downright impossible to master.
You may have grand visions for your newly acquired company, but remember that acquiring a company is a bit like flying blind; you have to operate under basic assumptions. Announcing any major changes based on untested assumptions and later having to adjust your trajectory can undermine your credibility. Yes, pivoting is useful and necessary, but in an environment where people are already insecure about their future, this uncertainty can lead to panic and low morale.
Though you will be tempted to give your new team as much visibility as possible, doing so could result in more complications than solutions. Transparency will come but, especially during times of transition, it is wise to offer direction while keeping your plans and promises close to the vest.
4. Get the basics right
Companies are intricate systems. Your ability to understand where, what, and who, the core business drivers are will be paramount in finding the direction needed for future success. In other words, concentrate on bolstering differentiation in the market, and everything else will follow. Even if you don’t make the right decisions on non-essential tasks, you can still ensure the long-lasting sustainability of the business if you focus on what makes it unique.
There is no simple way to do this. It takes work and requires humility to admit that you can’t possibly understand all the nuances of the business. One thing we have found to be particularly helpful is to dedicate the first year as an opportunity to connect with our new team and the customers they serve. Understanding what makes the human element “tick” will provide the groundwork for years to come.
5. 1+1 could equal 3… but don’t count on it
Ideally, you will be able to derive more value from the company you acquire as a result of how it supplements your own company’s offering. For instance, you can easily imagine sharing overhead costs, leveraging unique technology and resources, expanding revenue streams, or cross-selling to customers. In other words, you plan to make 1+1=3.
This is necessary to make the investment, but potentially dangerous, because the seller will try to convince you to pay more based on conjecture. If you give in to blind optimism, you might be tempted to take the over-priced deal.
Though on paper everything might look sound, things will not always go as planned. Because of legal hurdles, technical glitches and branding concerns. As a result of people. The list of causes that could adjust the equation closer to 1+1=2 or even 1+1=1.5 is extensive. In the end, your success depends on building a realistic strategy of how you are going to elicit the most value out of the company while avoiding the mistake of confusing your hopes with reality.
What about you, what have you learned from your acquisition efforts?