Acquiring a business is one of the most effective ways to accelerate the growth of your company. It enables you to expand into new markets or acquire valuable assets and talent. A successful business acquisition is about more than having the capital to make a purchase. Before any acquisition, you need a strategic plan that aligns with your business goals. Here are some key strategies and things to think about before you make an acquisition.

Understand Your Acquisition Goals

Before you begin shopping for businesses to acquire, you need to clearly define your acquisition objective. For example, are you looking to expand into a new market or gain new technology? Well-defined objectives help guide the acquisition process and align your objectives with your long-term strategy, ensuring the acquisition contributes to the growth of your business. 

IBM and Apple are two examples of companies that have used acquisitions strategically to expand their product lines and enter new markets. IBM acquired 43 companies between 2010 and 2013 to enhance its software business, while in 2010 Apple acquired Siri to strengthen its voice recognition technology. 

Conduct Thorough Due Diligence

Due diligence is a critical step in the acquisition process. It helps buyers make informed decisions and assess the true value and potential risks of the acquisition. Due diligence is more than making sure the numbers are good. It also involves identifying any legal or operational risks associated with the acquisition. 

You should also thoroughly evaluate the target company’s customer base and market position. This will help you gauge future revenue streams and provide insight into the company’s competitiveness and potential for expansion.   

Evaluate Cultural Fit

No two companies have the same culture. When you acquire a company, it comes with its own values and ways of doing business. Successful acquisition can hinge on the cultural compatibility of your company and the target company. If your cultures are misaligned, it can lead to management conflicts or the loss of key talent.

AOL's take over of Time Warner is a good example of how cultural mismatch can affect a merger or acquisition.  In 2001, the two companies merged to create a new entity valued at an estimated $361 billion.Things fell apart shortly after the merger mainly due to the incompatibility of old media and new media cultures. The failed acquisition ultimately damaged the reputation and finances of both companies.   

Understand Deal Structures

There are several structures commonly used for acquisitions. Each has unique characteristics and can affect the buyer and seller in different ways. Here are a few. 

Asset Purchase

Asset purchases allow the buyer to acquire specific assets and liabilities from the target company instead of buying the company itself. This allows the buyer to be selective about which assets and liabilities to assume. Asset purchase offers the buyer flexibility but can be complex and time-consuming. 

Stock Purchase

As the name suggests, this type of acquisition involves buying shares of the target company directly from its shareholders. This effectively transfers ownership of the entire company, including all assets and liabilities. This is simpler and faster than most deal structures. However, because the buyer assumes all liabilities, it can also increase overall risk. 

Merger

A merger combines two companies into a single entity. This can be structured as a statutory merger, where one company absorbs the other, or a consolidation, where both companies combine to form a new entity. Mergers can create synergies, increase market share, and reduce costs through economies of scale. They can also involve complex regulatory, financial, and cultural integration challenges. 

Develop a Post-Acquisition Integration Plan

A post-acquisition plan outlines how the two companies will merge their businesses to achieve the desired financial and strategic objectives. A clear integration keeps day-to-day operations running smoothly by providing a roadmap for merging processes and systems. It also identifies areas where the combined companies can create value or cost savings. An integration plan can also address employee concerns, minimizing decreases in productivity or attrition. 

Mitigate Risks and Ensure Compliance

Acquiring a business isn’t just about closing a deal. You need to make the right moves at every step of the process, from setting clear goals to structuring a smart deal. Each of these decisions can be the difference between a successful acquisition and a failed one. You need to think beyond the purchase. Focus on what happens after the acquisition and determine how you can drive growth together. You should approach every acquisition with a plan and be ready to adapt. When done right, an acquisition can be a game-changer, opening new doors and unlocking new potential. 

Need help with a potential acquisition? We can help. SHG provides our clients with expert transaction advisory based on extensive industry knowledge and experience. Our financial and operational experts have built strong relationships with our clients, empowering their success. Our team represents a balance of seasoned business operators and astute financial experts. With SHG, your goals and priorities always come first. 

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