Among the fastest ways for a company to grow entity value is through accretive acquisitions. With a well-executed acquisition strategy, companies can realize significant value in the first year, which often accelerates in the years that follow.
Many industries are highly fragmented, and consolidation is a smart and prudent strategy for growth. Even in consolidated sectors targeted acquisitions can be fruitful. In both circumstances, spending the time to develop an acquisition strategy with well thought out criteria for successful acquisition targets is vital. The goals for the transaction should be referred to throughout the process to make sure you remain true to your strategy.
The key to success in any M&A transaction lies in the details. Below we outline steps to ensure a positive outcome for businesses seeking to expand through acquisitions.
Overpaying – Many companies overpay for acquisitions in a frenzy of excitement in the negotiation. The need to stay disciplined cannot be overstated. Remain focused on the acquisition strategy, and realistic about the targets impact. Diligent financial analysis regarding the ROI and cash payback is required. Take time during the negotiations to review your assumptions.
Keep your business on track – Acquisitions are very time consuming, which leaves little time to concentrate on running the day-to-day operations of the core business. The majority of the workforce should remain focused on existing customers while a select few work through integration issues. Make sure you have a strong team of professionals to assist your staff.
Debt –Taking on too much bank debt can be disastrous. Understanding how much capital to put into a deal and having strong trustworthy relationships with lenders is paramount to avoiding this situation. Detailed financial modeling will help mitigate potential failures.
Integration – The financial projections might make perfect sense, but they will not be meaningful without a solid integration plan. Realistic planning is critical to success and without this, the expected synergies could be lost. You should have a plan in place with set milestones so that the acquisition integration can be measured, with corrections made as needed.
There are a wide range of issues for any company when considering acquisitions. A well thought out business strategy and well-designed integration plan will create the highest probability of success. Always remember, if the deal does not accomplish the goals you originally set out to achieve, walking away may be the best solution.
PCE has guided numerous companies through acquisition planning and execution. Please contact us to learn more about our services or answer questions you may have