One of my Chinese friends used to tell me, “Not all marriages are made in heaven.”
He says that there are always missing basic elements of a successful relationship that include sharing common interests, communicating on a regular basis, displaying appreciation and affection, embracing intimacy, and showing real empathy.
Honesty, trust, respect, and fidelity are also critical ingredients, but may not necessarily exist all the time.
Importantly, while the presence of these factors won’t necessarily enhance the relationship, because they’re expected, the absence of any of these qualities can turn a marriage from “heavenly” to . . . well, you know.
In the context of entrepreneurship, merging your business with someone is like a marriage that involves dealing with both sides of families. It is never easy expanding your business through a merger or acquisition, to ensure your interests are best represented in any subsequent transaction.
Before you ignore the rest of this article because “this is not for us, we are not big enough” etc. , I just want you to open up our minds that Mergers & Acquisitions (M&A) is a valid strategy for any business of any size – yes, even start-ups! And please, try not to think too much about dilution as much as your growth strategies, first and foremost!
You do not have to use this strategy in your own business but you must at least consider the options that it offers before ignoring it altogether. If you do choose not to go this route, then you must at least be aware of the consequences.
So, please take the time to read the rest before deciding this is not for you.
There are many reasons why a company might consider an acquisition or a sale but whatever those reasons may be, they should be part of a wider strategy for the business as a whole.
Too often a decision to acquire, or to sell, is made as a knee jerk reaction to a tactical move by another party or an external situation.
This may lead to a potentially large waste of time and worse still, long term damage to the business due to a loss of management focus.
The advantages of acquisition include:
- Accelerate growth
- Enter a new geographical location
- Enter a new line of business
- Gain some new business
- Acquire or enhance technical capabilities
- Gain market share
Merging and/or acquiring a business often involves the simultaneous closing of three closely related transactions:
(1) the purchase of the business,
(2) the financing of the acquisition, and
(3) the business management and ownership agreement among the co-owners/co-purchasers.
While many entrepreneurs know how to operate a business, many also need assistance in handling any or all of these matters. What happens during each of these transactions will have a direct effect upon the success, perhaps even the ability to survive, of the business being purchased.
Besides, there are so many critical tasks that are needed to be done before you pursue an M&A strategy, namely,
- Strategic planning to determine suitable acquisition criteria
- Identifying suitable candidate companies
- Conducting feasibility studies
- Developing a negotiating strategy
- Performing financial and operational due diligence
- Preparing the necessary financial projections
- Identifying potential finance sources
- Preparing and presenting finance applications
- Assisting with negotiations
- Dealing with post-acquisition integration
So what do we do now?
A word of caution – don’t sell because you feel you must get out, or put you in the category of what we call a “distressed sale”. A potential buyer, or more likely the professional advisor to the buyer, will smell your vulnerable position very quickly and will probably use your state of desperation as a means to do a cheap deal with you.
We will often spend up to 12 months grooming a company to make it an attractive proposition for potential buyers so that our seller gets a fair price for the company.
The best way to get a good price is to have several potential buyers interested at the same time which will be the case if your business is presented properly.
Perhaps the essence of this is the word “fair”. There cannot be a deal without a willing seller and a willing buyer. Willingness will be influenced by many things but a fair negotiation and a fair price are the two most important factors.
In future postings, I will share about the key steps to getting someone to invest in your business. Stay tuned!