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Three Ways For A Buyer To Make The Wrong Deal

July 3, 2017

 

Going through the process of buying a business is neither quick nor easy. Nevertheless, tried and true methods to getting a deal done so that it meets everyone’s long-term expectations do exist. I can tell you after more than 20 years in the business that following them will greatly increase the chances of a successful outcome.

 

So how does a transaction fail to live up to its promise? Buyers and their investment bankers can often point to one or more of these three pitfalls:

 

Not Performing Due Diligence Correctly

Shortcuts can be expensive, particularly when it means not taking the required time to evaluate a potential acquisition. Buyers should develop an extensive checklist to look through every facet of the business they’re thinking of purchasing. Assign responsibilities to appropriate parties and bring in experts if needed. Leave no stone unturned.

 

Not Understanding The Company’s Top Customers

Get a really good feel for the target company’s customer base and their commitment to remaining a client. If confidentiality is a concern to the seller, consider using a third party source to invite the target’s customers to complete an “industry survey" to gain a firm understanding of how they view your target. That information will be valuable in determining how best to structure the acquisition and move forward after the deal closes.

 

Not Identifying Cultural Issues

The successful acquisition of a company will ultimately come down, in part, to how willing the acquirer’s team is in supporting the integration of both companies. It takes a concerted effort to unify personalities and esprit de corps. Decide how and, more importantly, who will lead the transition to integrate the cultures and work dynamics into one. As soon as possible, engage both your staff and employees of the company you’re acquiring in discussions to strategize how the merger will occur and the most effective steps. Wherever possible, leverage the best of both worlds in the final plans. This will allay concerns by the other party that they’re being “taken over,” and it will lower their resistance to changes that need to be made post-closing.

 

Think of buying a business similar to a marriage. It’s an event you don’t go into lightly or try to speed up the process recklessly. Work efficiently, but completely. Learn all about the company. Uncover its real competitive advantages and issues. Only then can you make a strategic “go/no go” decision. If you get it right, the outcome will greatly benefit your bottom line. Get it wrong, and it can become the most expensive mistake you’ve ever made. 

 

About The Author: Tim Malott is a Partner with Shoreline Partners, and has led numerous sale, merger, acquisition and financing assignments across a wide array of industries. A former CPA and bank president, his career spans public accounting and commercial banking as well as investment banking through which he has gained knowledge and experience in nearly every industry and business sector. Mr. Malott can be reached at tmalott@shoreline.com.

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