Business Acquisition Mistakes To Avoid
Pursuing an acquisition can be an excellent way to grow a company, and lenders are also willing to assist in business acquisitions. However, business acquisitions are often tricky, especially for first-timers. You can encourage a successful business acquisition by avoiding these mistakes.
Poor Operational Due Diligence
While a checklist is vital for due diligence, it might not be sufficient enough. As a buyer, it’s wise to learn everything about the company you intend to buy such as market, customers, operations, management and pricing. You can eliminate this mistake by seeking assistance for operational, financial and legal diligence.
An Unfavourable Sale Agreement
Experts often recommend buyers to hire a lawyer to assist in drafting a purchase or sales agreement. If you don’t have a legal expert for that, you can hire one to review the deal after drafting before you sign it. The purchase agreement can, at the very least, include parties to be sold, sales price, offer remedies in case a party defaults and warranties and representations by both the buyer and seller.
Ignoring a People Plan
The people who constitute the two merging companies have never worked together. Therefore, there is a possibility that people are filled with mutual suspicions and concerns. The employees could be concerned about other workers taking their positions. That’s why you may need to consider developing a people plan to avoid falling into this pitfall. The plan can indicate how to handle employees from the two companies so that the acquisition doesn’t fail as a result of human suspicion.
Paying Too Much Money
You need not fall into the pitfall of accepting an offer that is too much for the company. It’s wise to benchmark the offer you get against risks quantified, sensitivities analyzed and the market. The price is perhaps too high if the combined companies don’t give you a return on investment on the purchase price higher than your cost of capital. You can hire an outside adviser who is an expert in business acquisition to help in getting all parties to comprehend the issues. It can also assist in enabling a successful deal or quantify some alternative outcomes.
Assuming the Importance of Culture
Some acquisitions often experience culture mismatch. You can overcome this mistake by taking time to understand the organizational culture of the company you plan on acquiring. It would be wise to purchase a company that shares your values.
These are some of the things you can avoid to ensure a successful acquisition. As mentioned above, consider engaging acquisition experts for a smooth process. It’s wise to research a company before paying for its purchase.