A key part of buying any business, and one that is frequently overlooked, is to determine if you have what it takes to make a successful acquisition. By TOM McKASKILL.
By Tom McKaskill
A key part of buying any business, and one that is frequently overlooked, is to determine if you have what it takes to make a successful acquisition.
Not everyone can or should undertake an acquisition. Even if you do decide to plunge into this activity, you still may not have what it takes to acquire certain types of businesses.
Understanding what you are capable of is a critical part of an overall acquisitions strategy.
Too often acquirers have failed to achieve a return on their acquisition investment because they took on an acquisition task that was way beyond their knowledge, skill and experience level. In most cases, they were not even aware of the problems they might encounter.
The critical lesson here is to only take on what you can confidently manage.
Acquisitions can be very complex projects. The entire cycle of target selection, evaluation, negotiation and post-acquisition integration requires many different skills and a wide range of professional expertise. Not only will there be contributions required from several different functional areas within the acquirer, but external advisers will need to be integrated into the acquisition evaluation, negotiation and contract stages.
The tasks range from competitive market analysis, legislative compliance requirements to complex change management processes. It is highly unlikely that any one person will have the knowledge and experience to cover all tasks, and so some level of project management is also required to ensure everything is undertaken at the right time.
The greatest danger for any business is to take on a complex activity without proper preparation. The landmines are in what you don’t know, not what you do.
Thus, preparation starts with an understanding of the acquisition process and mapping your capabilities on to the various types of acquisition activities so that you build up a list of what additional training is required, what further specialist resources need to be brought in and, especially, what acquisition projects you are capable of managing.
Acquisitions vary enormously in terms of degree of complexity, level of analysis required, degree of post-deal intervention and integration, and the level of difficulty of managing the operation once it has been adapted to your use.
Once you have worked out what you are capable of undertaking, even with external assistance, you can then limit your acquisition projects to ventures that have a highly probable chance of delivering positive returns.
Start with finding out what prior experience your own management team has with being the acquirer or the acquired. Find legal and financial service providers who can provide you with some training on the process.
Often you can get them to do this as part of your own due diligence in selecting your advisers. Bring in a project manager with operational experience of integrating acquisitions if you don’t have that experience in-house. Buy some relevant textbooks on acquisitions and have your senior management team gain some basic understanding of the process.
Ask your external advisers to provide you with some relevant articles and case studies to read to give you a feeling for what goes wrong and what the best practices are.
Acquisitions are often the largest single investment companies make and they undertake them over a very short period of time. They can be highly disruptive to the existing business as well as to the acquired firm. You owe it to yourself and to your investors and employees to only take on an acquisition activity that matches your capability of managing it to a successful conclusion.
Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the former Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia.