Questions to ask before an acquisition. Are you prepared?
With 2015 bringing major acquisitions to light, including US Airways to American Airlines and SanDisk to Western Digital, business owners may be inspired to go down the strategic acquisition road to take their enterprise to the next level.
It’s a strategy that I’ve used during my 9-year tenure as CEO of Pelican Products, successfully acquiring six companies and propelling our business into new markets and quadrupling our revenue since 2005.
After hitting peak growth organically, a strategic acquisition can lead to new market penetration, increased revenue, and geographic expansion. Yet, with all the upside, why does research show that there is an 83 percent failure rate in all acquisition deals?
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The answer is simple: lack of preparation. Before you dive head first into acquisition, there are critical questions to ask of yourself and the target company to determine not only your readiness, but also if it’s the best strategic decision for your business.
1. Does the Target Company Fill a Gap That You Cannot Fill Organically?
Take an inventory of current assets – manufacturing, people, and products. Could you scale your business by investing more resources and mature on your own? If so, acquiring a company may not be the answer you need to grow.
At Pelican, we acquired our largest competitor in the military and tactical case market, Hardigg Industries, because they owned the other corner of our market and had a well-established presence among our core customers that we needed in order to own our industry outright. Hardigg’s design, engineering and sales teams had deep experience in what we were missing on the rotational mold and customized cases space – something we lacked internally.
2. Do You Have an Adequate Financial Team/structure In-House to Handle the Transaction Side of the Acquisition?
It’s imperative to have a strong team behind you that can crunch the numbers and handle the legalities of the deal. This is far too big of an undertaking for one person, or even several. Do not overestimate your ability to handle these figures on your own…an acquisition is a beast of a deal, requiring a professional skill set that even the most seasoned CEOs may lack. As a leader, this is the time to delegate to those smarter than you to make sure all details are cross checked.
3. Do You Already Have a Post-Integration Plan in Place Before the Deal Is Done?
All that said, buying a company is the easy part when compared to integrating the companies after the deal is done. Yet, too often leaders are focused on the deal itself and not what comes after it.
Ensure that you have a robust, clear plan on how both companies will integrate on all levels, and how the acquired company will fit into the new environment. Will you retain acquired management? Will the old brand still exist in the market or undergo a rebrand? How are we communicating the acquisition to all parties?
Prior to acquiring Hardigg, we planned for and executed a five-year strategic plan with a full year of integration built in. So, before an offer is made, consider what the combined companies will look like in three to five years and have these formative years mapped out well in advance – it will help guide your decision.
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4. Have You Already Developed a Communication Plan to Talk Through How the Deal Affects Employees, Investors, and Customers?
Your company’s stakeholders- customers, employees, and investors – are all equally important in the deal. Have a communication plan in place and assets written before the deal is done and communicate your plan to employees and stakeholders first, customers second, and lastly, the public. Each group wants to know, “what does this mean for me?” so be prepared to answer this from all angles.
Employees have the right to know the inner workings and plans surrounding integration. Remain transparent with them in order to ensure that employees are developing the mindset and discipline necessary to plan for acquisition and integration. Ultimately, it will help foster a company culture that embraces acquisition.
Faster growth can be achieved through strategic acquisitions, as long as the due diligence has been done to figure out what life looks like post-deal. Even the best deal can turn sour if the proper integration plans are not laid, so remember not to jump into any deal unprepared. Load up a solid team, run through various post-deal environments, and then determine if it makes the most sense for your business.