So You Want to Buy Another Company: What’s Next?
Most of the growth you’ll experience early on as a small business will be organic. Selling more products or services, adding new employees, and gaining efficiencies through scale are the most common ways companies grow.
But eventually, you may find yourself in the enviable position of being able to expand your small business through mergers and acquisitions (M&A), and have the money to do it.
If this happens sometime in the next year or two, fortune might be on your side.
Sentiment is changing in the M&A arena. The fourth-quarter 2018 Market Pulse Report – published by the International Business Brokers Association, M&A Source and the Pepperdine Private Capital Market Project – says, “83 percent of business advisors say the strong M&A market won’t last more than two years, and nearly a third (32 percent) predict the current seller’s market will be over within the year.”
That means soon enough, the market could flip into a “buyer’s market,” where favorable deals become more plentiful as buyers begin to dry up.
That said, building through M&A isn’t as simple as choosing a buyout target and writing a check. Let’s look at some of the key steps you’ll need to take before you make your first bid.
Determine Why You’re Buying a Company
There are a number of great reasons for buying another business: simply hitting a growth wall isn’t one of them. M&A should be a tactical move that helps you achieve a particular goal better and more cost-efficiently than you could via organic means. A few examples:
- Acquiring technology that would be exceedingly difficult to develop yourself.
- Gaining market share by acquiring up a competitor rather than trying to beat them in a protracted fight that requires you to spend more and accept thinner margins.
- Entering new market areas, especially those that are complementary to your core business.
Perform Due Diligence
You’ve almost certainly heard “due diligence” before in the business world. It actually has a few different meanings depending on what area of business you’re dealing with. But as it relates to M&A, it means properly evaluating a company so you know what you’re about to buy before you buy it.
Due diligence is done in several steps, and involves not only ascertaining the current situation of a company, but whether current facts and conditions will remain that way going forward.
Early due diligence will include doing research on prospective targets from any publicly available information found on the internet or in newspapers – anything from news articles to financial filings. Once you find a target, you’ll not only need as much financial information on the company as possible, but you’ll also need to talk to management and other key personnel to determine whether the picture they’ve painted is legitimate.
Along the way, you should also get answers to several other questions, which will involve a combination of interviews, outside research and your own intuition. For instance, if you buy the company, will its staff and customers stick around? Or how likely is it that your target’s business could withstand an economic downturn? These are things that might not show up in a balance sheet but you’ll need to know nonetheless.
Enlist Professional Help
Even the bluest of blue-chip companies need help putting a deal together, so don’t think of mergers & acquisitions as something that’s DIY until you reach a certain size. Unless you’ve got enough cash to buy a company outright (unlikely), you’ll need an investment banker. You’ll probably need someone to help you transition new personnel over. And you’ll almost certainly need a lawyer with extensive knowledge of the M&A space.
Where can you find this crack team of experts?
McManamon & Co. offers a full suite of services for mergers and acquisitions, for buyers and sellers alike. If you’re buying, we can help you identify potential targets, assess their value and address any tax or financial reporting implications. If you’re selling, we can help you position your business for a sale, find a buyer and even negotiate terms. We’ve been aiding to small and midsize businesses for years, and our timely communication as well as expert advice will be the steady hand you need through what can be an exciting but stress-inducing time for any business owner.
Let’s make a deal! Call us at 440.892.9088 or contact us online today.
Tags: M&A, McManamon, mergers and acquisitions, small business | Posted in Consulting, McManamon & Co., mergers & acquisitions, small business