Tips for Acquiring a Business

An acquisition is when one company buys another to build on its own strengths or cover its weaknesses. Growing companies can expand on their own or together with others.

Many companies choose to grow internally. But there is always the option of buying other companies to boost results and expand at once.

What leads to the decision of Acquisition?

Acquiring a business is a complicated path to growth. But it is also an attractive one, for several reasons.

Increased Market Share

If you buy a competitor, you increase your market share. Say you hold 20% of the market and the competitor holds 15 percent. After the deal, you jump to 35 percent. That could make you the industry leader overnight.

Expansion into New Markets

You may buy a business outside your industry or niche. This lets you expand vertically or horizontally. It can raise top-line revenue, cut costs and improve profit margins.

Advanced Tech and Intellectual Property

Sometimes an acquisition is about getting a specific technology or intellectual property (IP). This may be the final push you need to speed up growth and expand further.

Talent Acquisition

An acquisition also brings new talent into your team. It may be a seasoned executive or a strong sales team. This is a benefit you cannot ignore.

Helpful Acquisition Tips

Assemble a Talented Team

A good acquisition team should include an experienced mergers and acquisitions advisor, a responsible executive, a lawyer, an HR professional and an IT expert.

Add public relations professionals to the team as early as possible. They help you control what customers, investors and even employees hear. They also improve your brand's image.

Do Extensive Due Diligence

A talented acquisition team helps you find the best opportunities. As you narrow down your targets, set up a detailed due diligence process.

This may include a broad, objective review of a letter of intent, confidentiality agreement, contracts and leases, financial statements, tax returns and other key documents.

Make an Initial Offer

If due diligence checks out, it is time to prepare an offer. Your first offer will most likely not be the one accepted. Yet it is the most important offer you will make. It outlines the deal and sets the tone for the rest of the negotiations.

It is usually wise to offer about 75 to 90 percent of what you are willing to pay. The offer should be low enough to leave room to move up. But it should not be so low that the other party sees it as an insult.

Negotiate

Your first offer will not be accepted. But unless you have badly offended the other business, it will come back with a counter-offer. This is where things get interesting.

Negotiations begin, and offers go back and forth. An offer has many parts, not just a price tag. Consider all of them in your later counter-offers.

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