Acquiring another company and merging it with your business can be the most efficient way to grow. But many acquisitions don’t pay off, and it’s often management issues — not market conditions — that get in the way.
Here are eight key merger and acquisition strategies that spell the difference between success and failure, no matter what the size of the companies involved.
Pre-Merger and Acquisition Strategies
- Consider the fit. If two businesses have incompatible goals and ethics, merging them can be counter-productive. Thoroughly analyze the compatibility of financial structures, customer bases, and corporate culture of the company.
- Listen to the seller. Money often isn’t the deal-breaker. If you can satisfy the seller’s non-financial concerns, you’ll have more negotiating power and improve the chances that the deal closes.
- Do your research. Thorough due diligence is essential and requires a knowledgeable and relentless approach. Besides careful accounting, spot check with customers and chat with vendors, employees, and neighbors. The more you know, the fewer surprises you’ll encounter.
- Develop a game plan. Long before the purchase agreement is signed, there should be a detailed road map in place for joining the two operations.
- Trust your gut. Even when an investigation makes the details look good, if the deal doesn’t smell right, don’t be reluctant to back out. Sometimes the fit isn’t right and you have to walk away.
Post-Merger and Acquisition Strategies
- Pick a team. Before you announce the merger, know who’s going to be in charge at the new company. That person will need plenty of time to focus on the task at hand and won’t be able to just add these duties to current assignments. Make sure that person has plenty of time to devote to what can be an arduous task. Don’t automatically assume the combined company needs new leadership. Evidence shows that their experience provides stability and helps navigate the shoals.
- Consider the culture. Little things, like who gets invited to a company party, can throw merger and acquisition strategies into a tizzy. The more you know about the acquired company’s culture, the more likely you can head off potential complications.
- Talk, talk, and talk some more. Controlling rumors among employees, shareholders and vendors is very important. Be open and honest in telling them what they need to know in order to feel secure enough to go about their business.
Before entering into negotiations, consult with your tax adviser about:
Assets versus stock. There’s a big difference between an asset deal and a stock deal. Your company may wind up with unknown, costly liabilities if the transaction isn’t structured properly.
Tax implications. Some expenses incurred in buying a business must be capitalized, while others can be amortized or currently deducted. Handling the sale in a tax-wise manner can save your firm in the long run.
Trust Maxwell Locke & Ritter for Professional Tax and Accounting Services
When it comes time to develop your business’s merger and acquisition strategies, Maxwell Locke & Ritter will give your case the individualized attention it requires.
For assistance with quality of earnings reports, the due diligence process, and more, contact us today.