Are you part of the 65.5% of buyers likely to lose their investment during business acquisition because of poor preparation?
There can be no doubt on our end, after studying buyer preparation extensively, that being ill-prepared is the number one pitfall in transactions.
You see, it’s easy to say that you’re going to be successful and losing your investment won’t happen to you. We’re not here to argue but to present you with insights from our studies.
As experienced M&A advisors with over 20 years in the industry, we don’t make claims that are unsubstantiated.
This is why wise buyers will heed the facts we’re about to discuss and the different means we’ve given on how to avoid being poorly prepared when entering a buyer’s market.
This information was extrapolated from 300 assessments collected from buyers across a variety of industries in 2020.
So, without further ado, here are the best practices (including supporting evidence) you can adopt to ensure you’re thoroughly prepared for business acquisition success.
Best Practice #1 Develop a solid strategic acquisition plan
Only 39% of respondents had properly thought through all the aspects of an acquisition plan.
An acquisition plan is one of the best resources you can have when approaching a buyer’s market. It’s designed to guide your purchase of a business.
An acquisition plan lays forth areas for introspection such as:
- Target business’ attributes, location, size, and type
- Financial metrics like EBITDA
- Personnel considerations including the management team, new talent needed
- Ownership participation model i.e. passive or active owner involvement
- Post-purchase goals and objectives
A good example of the need for a solid carefully thought-out acquisition plan can be seen in the disastrous merger of Daimler-Benz and Chrysler in 1998.
What looked like a merger of two automotive equals on the surface turned out to be a nightmarish transatlantic marriage that would result in the divorce of the German and American car makers hardly 10 years into the merger.
Best Practice #2 Assemble a dedicated M&A team
43% of respondents had identified a seasoned M&A team.
Buying businesses regardless of whether you’re new to this or have extensive experience. Part of deal readiness is assembling a qualified M&A team that often consists of:
- An M&A advisor
- An M&A attorney
- An accountant
Without the sound support of such a team, moving forward with mergers and acquisitions is tantamount to business suicide.
Best Practice #3 Identify lenders for an acquisition loan
53% of respondents had spoken with a lender so they could understand both their equity and debt capabilities.
How you’re going to finance the purchase of the target business is not a question you wish to address when you identify a good lead.
Doing your homework about prospective lenders provides you with data you can use to create financial models to lean on when contrasting different deal offers.
These financial models assist you in getting an idea of prospective principal and interest payments, potential owner salary, distribution, and viable capital for reinvestment.
Best Practice #4 Create a post-merger integration plan
Only 37% of respondents said they had the knowledge and resources needed to manage an integration.
Integration is albeit one of the most important aspects of mergers and acquisitions. If you botch this, particularly culture considerations, it creates friction, confusion among the workforce, and possible talent migration.
Plan how you’ll deal with clients, suppliers, systems, processes, and procedures as well as the internal communication structure.
Here’s a post-integration checklist you may wish to consult.
Best Practice #5 Have a deal sourcing game plan
Only 45% of the respondents had identified exactly how they would source prospective target companies.
Where do you look to find target companies? Do you simply browse businesses-for-sale websites or do you talk to industry experts like Sun Acquisitions?
Without a sourcing deal plan, you’re potentially limiting your search. After all, you want to see a variety of deals before making any offer(s).
On average you should have 6 to 12 deals you’re considering at once if your buying time frame is 12 months. The more opportunities on your table the better the deal you can secure.
If after reading this post you’ve noticed areas you’re concerned about, our free assessment can help you. We’ll work with you to get you into a better place so you can move ahead expediently and confidently. For help with M&A issues contact Sun Acquisitions.