By Maurie Cashman
You have likely thought about the possibility of acquisitions if you own a business of any scale. You have either thought of acquiring or being acquired. An acquisition process is not one that should be taken lightly and you must be well-prepared and utilize the proper advisors if you are to be successful.
“Democracy is two wolves and a lamb voting on what to have for lunch. Liberty is a well-armed lamb contesting the vote.” – Benjamin Franklin, 1759
In the arena of acquisitions, not much has changed since 1759 except for the rise of very sophisticated acquirers in the form of Private Equity Groups, Hedge Funds, and very savvy strategic buyers. These buyers have tremendous resources at their disposal and use them to place themselves in superior positions.
The question to you is whether you are willing to settle for a â€œdemocraticâ€ decision and either buy or sell a business on someone elseâ€™s terms or whether you want the â€œlibertyâ€ of participating in acquisitions on your terms.
There is a very good case to be made for acquiring a business or businesses to increase the value of the overall enterprise. Acquisitions can bring new customers, suppliers, talent, facilities, products and marketing channels that may make your business much more attractive and valuable to either an internal or external buyer. Growing by acquisition can also make your company much more attractive to a larger group of acquirers, the private equity groups and strategic acquirers, whom will often not enter a negotiation unless a company meets certain scale criteria.
Generally acquirers are very good or very poor acquirers, in other words they are wolves or lambs and ill-prepared. This includes the â€œprofessional acquirers, who are often over-confident in their ability to step into the shoes of an owner who has spent years in the business. Over 95% of acquisition attempts fail â€“ that means that a lot of time is spent and the attempt fails after lots of costs are incurred in due diligence. Acquiring companies is extremely time- consuming.
A solid ownership transition plan may be to sell your company to a third party. In this situation, you are very likely a lamb with the wolves in a democratic decision. Your â€œlibertyâ€ will be very limited without a very solid plan and team around you. Remember, you are probably only going to go through this one time in your life, and while many owners feel like the well armed lamb â€“ they have great businesses, little debt, loyal customers, employees that would never leave, etc. â€“ the truth is that they are overconfident wolves who believe they are circling in for the feast. The fact is often that they find that the buyer â€œlambsâ€ are very well prepared proâ€™s that understand exactly how to find and exploit the weaknesses of even a strong business and draw concessions from you. In other words, compromise, the very definition of democracy!
What to Do?
I have been on both sides of these transactions many times. I have been both a wolf and a well-armed lamb and I clearly know which one I intend to be. To quote another famous founder: â€œGive me liberty or give me death.â€ To be successful in either acquiring or being acquired you need a very experienced team that works well together.
You will need a strong tax advisor â€“ you do not want to get to the end of a transaction as either an acquirer or acquiree only to find that there is a large capital gains or depreciation recapture tax that nixes the deal.
You need strong legal advice to insure that you understand what is in a transaction and you need to listen to them. I have seen transactions close only to find that the buyer did not understand their commitments, which drove the cost of the transaction higher.
Finally, you need a strong planner and negotiator who can work well with you, your accountant, and your legal advisor and can also assess and work with the advisors on the other side of the table. What is often overlooked in a transaction is that it is often in the interest of the parties to have their advisors do most of the heavy lifting and for the principals only to get involved in approving the final transaction. It can be very powerful to have the final decision maker have some distance from the negotiations for multiple reasons.
So, you have a decision to make. You can settle for democracy or you can choose the liberty to acquire or be acquired on YOUR terms, as in the â€œwell-armed lambâ€ with the two wolves.
Look around this blog. Many questions that business owners have asked and many more questions that I’ve heard about or observed are addressed. My answers will hopefully be explanatory and illustrative of important business concepts. If you have a question, comment on this post, email me (firstname.lastname@example.org), or call me (319-213-8934).
If you know you need a business valuation or would like to discuss your ownership transition plan and would like to receive a complimentary proposa call me at 319-213-8934.
If you would like to talk to me about your business and its value, about a transaction you are considering, or about any thorny management or ownership transition issues in a complimentary initial phone session, email Amy Strasburger, our Director of Front Stage Operations email@example.com . She’ll schedule a workable time for us.
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