M&A Tips for Buyers

Read my other article on M&A for Sellers also ....

Most companies these days look for inorganic growth through acquisition of companies. I am not sure why it is called M&A (Merger & Acquisition). It should be the other way Acquisition & Merger (A&M) because you acquire first and then merge. Companies are acquired for various reasons

- Top line growth
- Bottom line growth
- New business line
- Team strength
- New location
- Customer acquisition
- Kill a product or a company !!

... are a few. But there are always challenges during merger and most marriages result in divorce. Here are few tips to keep in mind as a buyer.

1. Company is sold because of some issue with
- Partners in dispute
- Not able to scale
- Cash flow problem
- No market for the product
- Retirement of founder
- Danger of loosing key clients
- Found another business

.... to name a few. Try to understand the real problem before acquisition and come up with measures to address it post acquisition. Nobody sells a highly profitable, high growth, top customer, niche area company for a low price. You can't buy "Starbucks for four bucks".

2. If you bought a company have clear plans to come out with merger. Sum of the parts is never equal or greater than the whole. It is less than the whole in this context. Operating as multiple companies will send wrong signals to your customers.

3. Think of a way to announce the acquisition to your new customers. If you do it wrong they will leave resulting in a M&A failure.

4. If you don't have the management band width to take over the company you bought never buy a company. Seller will never operate the same way and generate profit for you the way he used to run it before. You should "rock the sailing boat" if need be if not it will become a "sinking boat" and then a "stinking boat"!!. Seller always wants to relax a little bit after running a relay race while running his own company.

5. Ask the question "what is your value add to the seller during the transition period?", "what is the value add to the customers of the selling company". If you don't have a clear answer there is potential trouble post acquisition.

6. Understand who in the new company hold the key relationships and make sure the seller protects the interest of those individuals.

7. Advice the seller in all aspects to make him/her successful during transition period. Help the seller achieve earn out. Be truthful. Any trouble for you is a trouble both sides. Think win-win.

8. Understand that you didn't just buy the company, you bought an entrepreneur /s. Entrepreneurs think differently. You need to manage them differently and the new toy then the entity that you bought. If you manage them like the way you manage your employees you are setting yourself up for failure. Entrepreneur had a dream to go after and he did well with the company he founded but when the company is sold he now has to go after somebodyelse's dreams. Entrepreneurs are not good at that.

9. Put everything possible in a contract and operate very close to it. Never default payment or breach the trust. Guess what both you and your customers will be in trouble.

10. Explain all your management decisions very clearly to the founders before you execute them. If possible discuss them with the founders before you decide to take that step. All decisions will have to be owned by the founders if you want them to be implemented successfully. If not the message that goes out will be that the new company wants to make these changes and I have nothing to do with it.

11. Do a proper due diligence and ask all the tough questions upfront. Remember it is too late to ask after the acquisition any ways.

12. Deal structuring is very important in a M&A. Think win-win during deal structuring. Explain the complete ramifications of every aspect of the structuring to your seller. If possible write a supplemental document on how each one will be implemented. For eg. if you have a 24 month transition period for the founders or key resources explain how you will handle your merger during this period.

13. You should have an overall corporate business strategy and M&A should be part of your game plan to meet your strategy. Don't look for M&A targets as a separate activity with out having a clear strategic plan. Come out with a template of what type of companies you are looking for and how you would go about the acquisition. Some companies go into M&A because some company is available and comes at a reasonable price. This will result in an impulse buy which is not good for a corporate.

Read my other article on M&A for Sellers also ....