We have previously studied the importance of developing a strategic vision, also called an ‘industrial project’ before seeking acquisition targets, as well as the need to ensure a strong match between the M&A advisor and the organic Strategy For Growth plans. Let’s now look at the acquisition process itself and the key aspects to watch for as the different phases of a typical process and sometimes tense negotiations unfold.
Map the Acquisition Process
As a buyer, you need to know exactly what due diligence requirements are, what value you are willing to pay for the target business, and how it will fit into your existing structures and procedures. It is also important to identify the advisers and specialists who can assist you in the process and promote a successful transaction for all parties involved.
If you clearly articulate the criteria and conditions to be addressed before the final transaction and provide the lean management of the target company with a realistic timetable for execution, you will facilitate and accelerate the negotiation phase and free up the attention required to think about the measures to be taken. integration to be deployed as soon as the new company is taken over. A work of reflection, carried out in collaboration with the management of the ceding company, will contribute to harmonious labor relations throughout the negotiations relating to the acquisition price, representations, and warranties, recognition of revenue, etc.
Finally, it is important to arouse the trust of the management and to explain your objectives and industrial project, so that all the parties can devote themselves serenely to the course of the transaction and discuss in good understanding the price, the purchase-sale contract, and other elements necessary for the success of the negotiations.
Successful onboarding starts with the acquisition process
As mentioned above, the integration of a new company must be thought out and planned methodically before the due diligence phase. There is no shortage of examples of companies that have applied themselves to validating all the stages of due diligence and all the details of a transaction and which, in hindsight, have completely destabilized a previously flourishing business due to poor integration and a breakdown in relations.
The process which begins with the granting of a period of exclusivity and culminates (if all goes well) in the signing of a contract for the purchase and sale of assets offers an ideal period for the management of the two parties to get to know each other and to understand the respective culture of the two companies. The objective is to guarantee a smooth transfer of ownership and an efficient integration, whatever the degree of integration required or deemed appropriate. And above all, this work of dialogue is the only way to establish the confidence required to conclude an agreement and establish beneficial working relationships for the future.
Key steps to a successful acquisition
In a context where each acquisition process is unique, you can, in addition to developing trust and consultation between the respective managements, take several measures to guarantee a successful transaction and a smooth transition. These measures are as follows:
Maintain specific goals
Again, while having clear objectives and a clear idea of the ideal company at the initial stage of identifying targets is essential, this imperative remains vital when you submit the first offer and begin the process to close. the transaction.
Invest time and resources in researching potential targets
It would be tempting to believe that the list of targets known or obvious to management constitutes the definitive list of attractive companies. However, the reality is always different. Define a set of criteria and conduct an exhaustive search for companies in the relevant geographical areas, to identify, analyze and consider all possible targets. This gives you more leeway and avoids having to end up with a one-option process.
Develop a specific opportunity study for each potential target
Translating the strategic and industrial logic into a specific opportunity study helps to identify the company. You are proposing to acquire and form the basis of a detailed and carefully considered integration plan. As we have already mentioned. It is in your best interest to carry out this work during the acquisition process and in cooperation with the management of the target company. Within the limits of what you deem reasonable to disclose before closing the deal.
Assign the required resources before issuing the offer
As an SME, you probably do not have an unlimited number of resources, whether financial or managerial. At your immediate disposal. Before accepting the conditions that grant you exclusivity. You must therefore ensure that you have sufficient resources to complete the process. Your needs naturally concern the financing of due diligence and advice. But also and above all the definition of a schedule that allows your managers to devote time to the process.
Use the skills and knowledge of specialists
Acquisition processes inevitably generate substantial costs in terms of transaction fees. However, it is often necessary to use legal, tax, financial, and commercial consultants. Specialized services of this type have a price but are essential. Done well and focused on key areas, this professional work can radically improve your understanding of a business. Reduce the purchase price, and add value to the development of the business once acquired.
Approach negotiations to pay the right price
Everyone appreciates a bargain. But like a salesman who would be ill-advised to try to fool potential investors. Or buyers by clumsily inflating his company’s results. It would be unwise for a buyer potential to lower the acquisition price below the ‘fair’ value. Competent leaders know their business and, to a large extent, its value. Negotiating for a reasonable purchase price is part of the process.
On the other hand. Over-negotiating the price downwards risks blocking the acquisition of an interesting. Company or jeopardizing relations during the integration and earn-out phases. Agreements with an earn-out clause for executives. Holding shares can indeed represent an interesting way of minimizing the risks of a transaction and maximizing the selling price. It is still necessary that these agreements also be defined equitably to be incentivizing.
Be sensitive to the culture of the company to be acquired
A company is not just about its income statement, the products, and the services it provides. Or the contracts it has signed. While quantitative analysis is an integral part of business valuation (and due diligence). Corporate culture is often a factor that can turn a thriving. Well-positioned business into a naturally high-powered venture. value.
As a buyer, you need to be mindful of this factor and evaluate. And understand it considering your own company culture. Company culture affects many aspects of the business, from production to efficiency. And staff productivity to the perception and image that customers have of the company.
M&A advisory firm is not the exclusive preserve of large group and does not require to have a separate team dedicated to this task for mergers and acquisitions services, with all the financial and human resources that this entails. If you are an SME wishing to achieve a significant growth ‘leap’ through an acquisition. Adopting a strategic approach that will guide the entire process – targeting, transactional process flow. And integration phase – will allow you to acquire or more value-creating businesses. As a result, accelerate the achievement of your long-term ambitions. This requires a good dose of planning and realism.
If you still have questions regarding this subject, do not hesitate to contact our European consulting firm. You can also download our checklist. Which will allow you to understand if you are ready to carry out your international development project.