After 13 years of owning a more traditional, boutique PR and marketing agency, I looked into buying a digital agency to round out what we can offer our clients. We wanted to be more in control of our future from a digital front and certainly be more marketable in the years to come. I was fortunate to work with a partner who is an expert at deciphering the true value of a company, its spreadsheets and Net Operating Income (NOI). Here are a few things I learned along the way when acquiring a business.
Audit your existing business model
Auditing your existing business allows you to take a step back from the day-to-day grind and see things more clearly from a different perspective. Ask these questions:
- Have you consistently stuck with your values and mission?
- What is the health of your current company and its direction?
- Which part of your current business is going to create value for the new business and which voids are you looking to fill?
In some cases, you might find you need to first restructure core pieces of your process or flaws in your business plan before you’re really ready to look at acquiring another company. This can help you understand how another company is truly going to fit.
Related: How to Buy a Startup Business
Before you truly delve into buying a business, your M&A (or mergers and acquisitions) opportunity must have strong strategic logic behind it or you risk success that won’t be sustainable.
What you invest in the deal determines what you’re ultimately going to get out of it. Know your numbers inside and out, then run them again so you can determine if it’s a smart business move. If you’re unsure, hire a consultant who can give you an unbiased opinion on how you should proceed.
Once you’ve found a business you feel is the right fit, the next important part is the due diligence period. We went through a business broker, but his or her allegiance is typically with the seller.
Not only should you learn about the potential business you’ll be buying, but also the ins and outs of the specific market. If, as the acquirer, you don’t know either of these intimately, it could pose a significant challenge in the negotiation phase and especially once the deal closes and you start working.
Critical aspects of due diligence include:
- Onsite meetings: We might live in a tech-focused world, but the value of meeting face to face can never be replaced. Following your initial introduction, you should be present during the due diligence period as much as possible.
- Vetting all accounts: You should never leave any stones unturned when it comes to pouring over all accounts of the business you’ll potentially be acquiring.
- Legal counsel: Look for someone who specializes in M&A and who can cover every point that will be important for your success in the long run.
After due diligence, fight the urge to rush the negotiation phase. Too often, increasing momentum (from either side) to close the deal forces premature closure and can limit many important considerations.
For example, you may only scratch the surface of comprehensive integration during this phase. Of course, in many cases you won’t figure it out until you’re in it, but ambiguity can set you up for real problems down the road. The trust the acquirer and seller establish during this phase is critical to developing a sound business relationship after the deal is done.
Most times in a M&A, there are existing processes and tools to learn and integrate. Make sure you have a plan for these well before the ink is placed on the final contract. Even more important is onboarding employees or contract employees who will now be working in the newly merged operation.
According to Find Great People, managing diverse teams takes special skills, management and a focus on emotional intelligence. Find out as much as possible about the new team members before the merger through one-on-one meetings. Planning a team retreat after the dust settles is good way for people to learn more about each other in a casual environment. This tactic eases people into working relationships in a more neutral and lower-stress place, among many other psychosocial benefits.
I highly encourage learning as much as possible about the existing accounts you’re acquiring and asking probing questions about the proposed longevity of these accounts and relationships. Many times in the B2B world, you are buying intellectual property, but you want to make sure all the accounts have sticking power and that there’s a bounty of solid relationships with those accounts. That’s a difficult factor to assess in due diligence, but it’s worth looking at. It’s your hard-earned penny and you want those pennies (and many more!) to flow in long after the deal is done.