Is buying a business ever a good idea?

Mergers & Acquisitions (or M&A as it’s usually described) is a very colloquial term and doesn’t much represent how business sales and transactions happen today in the real world. For instance, when was the last time you heard of a true merger? Me neither.

Acquiring or selling a business is a large undertaking, no matter what context it’s in, and for some (many I would say) a business sale may only ever happen once in their career, as they exit (hopefully profitably) with the aim of filling their time doing better things than work.

I’ll look at selling a business, and the many things to look out for in that process, later, but for now I want to concentrate on what happens when you buy another organisation.

The Number One Reason

First of all, if this is something that you really want to do, you have to ask yourself why. What is it about buying this business that makes it worth doing? The answer might seem obvious, but you need to be careful that your intentions align with what’s ultimately best for your business, not your ego.

An immediate increase in revenues is the number one reason why most acquisitions occur and if you have a ‘willing buyer and a willing seller’ then this can make a whole heap of sense. This is primarily because, if you’ve done your planning, you’ll realise that yearly organic growth is a tough gig. It comes with no guarantees and it’s a slow, painful, grind.

Conversely, buying a business could add the equivalent of 3-5 years’ worth of organic growth in one go, and this could really jump-start things for any organisation.

Be careful what you wish for though. Many, many business acquisitions happen every day and it’s definitely true that they can have a large and positive impact. However, it’s also definitely true that they can be disastrous.

How does it work?

At the 50,000 foot level, here’s what generally needs to happen in any business acquisition;

*SPA – Sale & Purchase Agreement
** PAI – Post Acquisition Integration

Believe me when I tell you that this really is the tip of the iceberg. I have process plans for acquisitions than have over 40 critical milestones in them that have to be met to ensure it takes place as smoothly as possible.

Don’t get me wrong, I’m really not trying to put you off, but I do think it’s very important that business owners get some perspective on just what’s involved in an undertaking like this.

I’ve been asked many times what the biggest downside to the acquisition process is, and it’s really easy to answer; time. However much you think or feel that you can concertina this process into a short, acceptable, timescale, you can’t. For even the most straightforward of acquisitions, in my view (following the model above), you must expect to be in the process for 4-6 months, and that’s if it all goes well.

If you think about it, in order to do this process justice, you will need to be heavily involved every step of the way, and, as this process is not what you normally do inside your business, you’ll need to make time to make it happen. This usually means that something else has to bear the brunt, so unless you have a great number 2 to pick up the reins while you’re gone (and you will be), there’s a real possibility that your own business will suffer while you go through this process. And, what happens if the transaction ultimately fails? Actually, you could end up worse off than when you started. It’s a lot to think about.

Details, details

I could paper the walls with the details and introspection that needs to be gone into here but, for brevity, here are just a handful of things to consider (about the company you’re buying and the process itself) when looking for that mystical 2+2=5 equation, provided by an acquisition;

Fixed and recurring costs Strength of the stated revenues
TUPE* Age of any material assets
Overlapping synergies Team cultures
Staff communication Change process & politics
SPA Warranties Geography

*TUPE – Transfer of Undertakings (Protection of Employment)

I find that a lot of companies that I’ve worked with have planned really well for the acquisition itself but ended up being really badly prepared for what happens when the process completes. This makes life hard because the real work only begins after the deal is done. If you want to retain the majority of the value you’ve just purchased, then you’ll have to work really hard to satisfy new staff and customers that this deal really is in the best interests of everyone concerned.

Of course, nothing comes for free, and if you want to buy a business, somehow, you’re going to have to pay for it. Whether you borrow money, raise capital, create shares or do a combination of all of these options you’re now putting yourself under pressure to deliver the benefits of this purchase in order to get the return on investment that you felt you saw at the beginning of this process.

I’ve met some great entrepreneurs that are just masters at acquisitions. They seem to know exactly what to look for, are fair in negotiation, and can put a deal together quickly and seamlessly. Truth be told though, buying a business isn’t for everyone. I’m certain that under the right circumstances it can really make a huge difference (and I’ve seen this many times), but please be careful; know what you’re getting into before you light that cigar, there’s a lot more to it than you think.


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