Business acquisition is one of the strategic opportunities to strengthen the financial performance and market position of a company. Acquiring an existing company from a competitor or other provider enhances the market share of the company, creates synergy, enhances access to the new resources and competencies, reduces market entry barriers, and others. However, to have a successful business acquisition you must follow certain processes or steps. So, this article explains the steps for investors to have a successful business acquisition.
Steps for a successful business acquisition
Set goals for the acquisition
The first step is to set your goals for the acquisition base on what motivates you to carry out the business acquisition. This is involving the provision of the answer to “why acquiring a company”. The reasons for the acquisition can be broad but you have to be specific. The reasons behind the acquisition can be for efficiency, diversification, economies of scale, leverage, patents, and others. Knowing the reasons behind the acquisition will help you to acquire the right company. The business acquisition must be a way to close the gap between the current state of your company and your desired future state. These goals will be the factors to screen prospective target companies as well as conducting due diligence.
Establish search criteria
The next step is to establish the criteria to search for the right candidates to acquire. When you are setting the search criteria, you need to consider the amount of money you are willing and able to spend to acquire another company. Also, you need to consider the market to operate, the customer base of the target company, the financial position of the target company, and others.
Search for the candidates
Now that you have the criteria for the target candidates, it is time to start searching for the targets that fit the criteria. However, you can search online by searching for the candidates from the Merger and Acquisition (M&A) databases available online. The business owners and their bankers always list the businesses available for sale on M&A databases online. Searching for the target companies on the M&A database will help you to compare the prices available online with your target price. You can also search for the right candidates offline and within your target geographical areas. The most important factor to consider is the suitability of the target companies to the size and geographical location of your business.
Contact the selected candidates
The next step is to reach out to the selected candidates. If the candidates are found on the M&A database, you will need to communicate your intention to their bankers first. The bankers will register your interest in acquiring the companies, then provide you with the confidential information of the company.
There is a lot of things to plan about when acquiring an existing business. You must plan for the tax implication, legal implication, business structure, and others when acquiring a business. The services of professionals maybe required to guide you through the acquisition process.
At this stage, you have to evaluate the liquidity of your company and that of the target company. Checking the liquidity and financial health of your company is very important if you want to have a successful acquisition. Assessing the liquidity to ensure its adequacy to safeguard the growth and success of the two companies. Failure to assess the liquidity may put your company at risk of failure and make the acquisition to be unsuccessful.
The due diligence will give you the opportunity to fully investigate the target company to confirm the seller’s claims and highlight the red flags. You don’t need to rush this process because it is the last chance to identify if there are red flags in the closet of the business to acquire. At this stage, you will have the opportunity to familiarize yourself with the operation of the company. The due diligence includes gathering information about the business structure of the company, audited financial statements, contingent obligations, tax records, management, contracts, and others. Therefore, at this stage, you must insist on receiving full financial statements and business disclose of the target company before the acquisition.
Close the acquisition
Closing the business acquisition deal requires the assistance of your legal team to approve and collect all the necessary documents to finalize the deal. The documents will include the purchase agreement, legal document, evidence of third-party consents, approvals from regulatory body evidence of cash or share consideration, and others. Recording success in the stage will make the cultural and integration stage to start as early as possible.
Culture and integration
The integration of the two companies is also a vital and final stage of the business acquisition process. During the integration stage, the cultures of the two companies must be considered to ensure successful integration. To have successful integration, you must ensure open and effective communication between the workforce of the two companies.
In conclusion, the occurrence of a large number of business acquisitions every year shows that companies in the whole world still believe in the growth created by the strategy. However, to enjoy the success and growth of the business acquisition, you must ensure successful acquisition, and to ensure successful acquisition, you have to follow the stages explained above.
Afeez is one of the founding partners of Marasas Consulting limited. He consults for both individuals and entities in the area of accounting, management, audit, tax, and investment. He has a wide range of experience both online and offline which allows him to provide relevant and timely professional advice and assistance to business owners with their accounting, tax, management, audit, and investment plans.
Afeez is a member of the Institute of Chartered Accountants of Nigeria (ICAN) and a member of the Nigerian Institute of Management (Chartered). He is a certified Google analyst and strategist. He earned his Bachelor degree in Management and Accounting from Obafemi Awolowo University, Ile-Ife, Nigeria, and earned an ordinary national diploma in Accountancy from The Polytechnic of Ibadan, Oyo State, Nigeria. He earned certification in “Excel Crash Course” and “Reading of Financial Statement” from Corporate Finance Institute, Canada.
Afeez is dedicated to helping clients achieve business success by helping them to establish solid and sound accounting, tax, and financial processes.