The Acquisition Process, From Start to Finish

As your company grows, you may be considering acquisitions which offer many benefits, from introducing new services to expanding into new markets. However, acquisitions require much planning to be successful. There are many aspects to consider which all affect the end result of the acquisition.  

In this article, we draw from our years of experience in sales and acquisition to share in-depth advice on the steps and factors involved in performing an acquisition. 

Why Acquisitions? 

Acquisitions are a great way to quickly: expand in existing markets; enter new geographical markets; add new end markets; add new products and services; and/or increase the value of a business.  

Acquisitions Must Be A “Win-Win” for Both Parties 

Acquisitions must be mutually beneficial for both parties in order to be successful. Both parties should spend time establishing complete trust with one another. Then, when it comes time to close the deal, both sides are very comfortable and have total confidence in the outcomes that both parties will deliver post-close. 

Acquisitions Are an Extremely Emotional Process for the Seller 

For sellers, their company is their baby. They have poured their blood, sweat and tears into their business and have worked hard 24/7/365 to build it. As such, buyers must have extreme empathy for a seller. Sellers need to know that buyers will continue to nurture, develop and grow the business they have spent their lives working for and that their legacy and their teams will be honored and very well taken care of. 

How to Find Acquisition Opportunities 

Many acquisition opportunities will come from a buyer’s existing network of industry contacts or via referrals based upon industry reputation. Otherwise, acquisitions can be found via investment bankers or business brokers. Acquisitions are often cultivated over many years spent building trust and rapport between buyer and seller. 

Strategic vs. Opportunistic Acquisitions 

Opportunistic acquisitions are those that are initiated by a seller seeking an exit or liquidity event. Strategic acquisitions require research and proactive outreach to initiate a transaction in a desired geography or market. 

Local vs. New Market Acquisitions 

Local acquisitions enable a buyer to consolidate and gain market share in their existing markets, but often times local sellers are much more guarded due to competitive sensitivities. Local acquisitions can be highly accretive and are often easier to execute and integrate. New geographic market acquisitions must have significant strategic value as they are more costly to execute and integrate and generally much more complex. More time and resources must go into the diligence, planning and execution of new market acquisitions to ensure their success. Despite their challenges, new market acquisitions are much faster and typically deliver higher return on time and investment than an organic “greenfield” approach to growing new markets. 

Necessary Resources for Acquisitions 

Acquisitions require a due diligence and transition team that is both experienced and qualified. This team includes members of a buyer’s strategic leadership team, operations leaders, department heads and third-party resources. Strong organization, planning and communication across the diligence and transition team are critical for successful acquisition execution. 

Playbooks and Processes 

Successful acquisitions require comprehensive and highly detailed playbooks and processes. These typically start with extensive question lists and data requests which a seller must satisfy in full after executing an NDA (non-disclosure agreement). Once all the necessary diligence requests are satisfied, it is up to the operations transition team to use the information gathered during diligence to develop and execute the integration plan and playbook which consists of numerous checklists for the various functional departments. This critical step in the acquisition process requires extreme coordination with a seller’s management team. 

Valuations and Multiples 

Valuations are as much an art as they are a science. There is no simple definitive formula for valuing a business. The same is true of multiples. Numerous variables are considered when valuing a business. Valuation often comes down to a buyer and seller finding a price that both sides are happy with, which always requires a significant amount of give and take. Company-specific factors and the situation and desires of the seller all affect valuation and earnings before interest, taxes, depreciation and amortization (EBITDA) multiple.