Business acquisition and using a broker

Crisis management

Business Acquisition

The myth:
Business mergers and combined synergies can lead to better business for both.

The fact:
There are no business mergers, only acquisitions. The acquired company is going to be force fitted in to the new acquiring business.

It's often politically expedient to soften the blow of one business buying out the other by proclaiming it a business merger. But merger is a strong word emphasizing a meshing of operations, processes, products and services. This is almost never the actual case.

Before acquiring a business there a few last minute considerations. These may not influence the final decision, but they should give you an idea of what will be involved in the acquisition process.

The first steps in the business acquisition process

Where does it touch the customer?
Most of the difficulty will come in the form of customer confusion or loss of service level. Generally speaking the acquired businesses customers are often seen as icing on the cake by current employees. But these customers are the ones that initially will need the most attention. The sales and delivery process should be as seamless as possible in the transition. Customer service is also one of those key areas of business that is often over looked. Individuals within your customer base often develop close relationships with sales reps and customer service reps. These two are the first line of communication with your new customers. And it's not just the people, most ERP systems today are accessible by your customers. Changing the way the order, check status, or run reports can be a dicey issue.

Employees in both organizations.
What are the expectations? Fears? Is there over-optimism because of the chance for new opportunities? Usually the biggest problem is fear of losing a job. You'll need to make it clear on both sides of the business what the plans are. If possible, it's always advisable to try and re-assign displaced workers within the organization. You never know when the knowledge a particular person has will come in handy. For the smaller business an acquisition can often be a time of optimization. The employees feel part of a bigger organization and are keen to exploit the career advancement opportunities that arise. Playing on this optimism is a win for both the employees and the business owners.

Operational duplication issues.
Certain aspects of both operations will usually be changed. The key is to try and avoid force fitting one side or the other too early in the process. The best chance of success is in selecting the best procedures from both companies. Defining the best is easy. Whatever your biggest customers think is the best. It's a hard pill to swallow but the fact is the customers sign your paycheck (or dividend check as the case may be). In the back office operations it's a little more difficult.

Duplicate products and services
This is not as easy as it sounds. The best product or service is in the eye of the customer. For a long period of time it may be necessary to maintain offerings that are not complementary. Deciding when to drop a product line is as important as deciding if too drop the line. As a rule of thumb, when the customer is firmly yours (after the acquisition) it's probably safe to start migrating them to your product line, or in some cases migrating them off of yours, and on to the new one.

Changes in the financial structure of the business.
The burden of debt accumulated during the acquisition is only part of the problem. Initially you'll be paying for duplicated management and operational overhead. The back office functions that don't touch the customer (Accounts payable for example) should be cut quickly to save money. It's important to keep in focus that a strong company buying a weak company doesn't always translate in to a bigger and stronger company. In many instances the end results is a strong company has become an average company. Nothing drives this mediocrity more than financial pressures.

Acquiring the business leaders.
This isn't just a problem when acquiring a small company. Many mid-sized and large companies are successful due to the will, perseverance, and knowledge of a few key players. Knowing who these players are, and what their role will be in the transition period, and over the long-term is another one of those critical factors. In a small business it's almost always an absolute necessity to retain the business management for at least six months. This helps ease the transition among employees and customers, and allows your managers to find the strengths and weaknesses not uncovered during due dilligence.

Integrating technology
If there's an issue with over lap it's going to manifest itself first in technology. As soon as the deal is closed you're going to have two e-mail systems, to financial or ERP systems, two entirely duplicated networks in many cases. The best way to integrate these systems is through the initial use of out sourcing. You can outsource software services as easily as you can people these days. This will allow you time to properly integrate technology and at the same time retire systems and applications that are no longer needed without causing undue problems for your customers.

The John Galt approach to business.

Managing difficult People