Acquisitions

Congratulations! You've worked long and hard, invested in the right people, done the right things, and you're ready to make your first strategic acquisition. Now is the time for due diligence.

As part of any acquisition process, there are questions that you need to ask yourself first. If you don't have black and white answers that your management team understands and agrees with - especially your Sales Manager and CFO - the process must stop here. If it doesn't, you are making a potentially fatal mistake. What questions? Glad you asked:


  • Why this company?
  • Why now?
  • Are there other companies that would be a better fit?
  • How many people do you need to keep? For how long?
  • Do they have some people that are better than yours? Does it make sense to be redundant?
  • How much will it cost to let people go? Make sure that you are in chrge of the layoff package - not the other company.
  • Can you afford the buyout in one go, or are you financing it? If the acquisition company tanks, can you afford the loss plus the financed acquisition cost?
  • Who is going to review their books with a fine-toothed comb?
That last one, in particular, should be tattooed on your forehead. I don't care if you're buying your mom's company; business is business. They are willing to sell out for a reason. It's your job to find out what that reason is. I don't care that they told you that they're retiring; everyobody says that. Why are they retiring now? You need someone who snoops into books for a living to do exactly that, because you can't trust them and you don't know what you're looking for. At a minimum, your snoop should know this by the time they're done:

  • Are their sales rising or falling? Why?
  • How profitable are they - not just gross, but net?
  • Are they over-comping their people?
  • Who are their star performers? Can you afford to keep them?
  • Have they already made written promises to any employees - or Customers - that you will have to make good on?
  • Who are their best and worst Customers?
  • Does their Customer list add enough new names to yours to make the acquisition worthwhile? Don't assume - find out by pulling their database and having it deduped and matched against yours.
  • How do their processes work? Sit with their teams. Are there some processes that are better than yours that you should adopt? Can you make them more efficient?
  • Are you stuck with a building lease that you don't need or want?
  • How about vendor agreements? Are you assuming your competitor's headaches?
  • How long will it take the company that you acquire to pay off what you paid for them? This should be part of not just your financing agreement, but also your negotiations with the owner(s).
  • Who else are they talking to? Because it's not just you. The sooner you know who they're in bed with, the sooner you can put an agreement in place to stop all other negotiations. If they won't agree to that, it's time to walk away from the table.

That last one is a bigger issue: Never be afraid to walk away from the table. Any acquisition is a huge step, and even the biggest players get it wrong on a regular basis (just look at Time-Warner and AOL). Getting it wrong can mean not only missing a key opportunity to grow, but killing your own business in the process.

Follow the Jackrabbit Rule: If anything smells bad, run.

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