We have been fortunate to work with many successful companies that have grown significantly over the years. One way this growth has been achieved is through mergers and acquisitions. Unfortunately the statistics tell us that over 50% of these deals fail. We might be biased but we believe the accounting component of structuring a deal is critical to its success. BSB has not only assisted many of our clients plan, structure, and execute these deals but by virtue of having acquired many accounting businesses ourselves we also have the unique perspective of the active participant. Through these experiences we’ve developed the following list of “Do’s and Don’ts” of making the deal. None of these are Rocket Science, but it is amazing how many times some of them are missing.
There are 3 primary motivations for companies to acquire other businesses: to create revenue growth in their core business; to fill a strategic gap in product, people or capabilities; and/or to enter a new market. How will these make the company better?
Every company has a unique culture and personality which is a reflection of the personalities of its key members. The acquiring company needs to have a clear understanding of the people, personality and culture of the target company, and if there is a substantial difference between them a plan needs to be developed to meld the two.
The buyer wants to pay the lowest price possible, and maybe structure a deferred payout; the seller wants the highest price possible upfront. Put yourself in the other company’s shoes to understand why they are selling, owner cash out, competitive weakness, opportunity to grow their business and how they look at the valuation metrics. The better you understand these the better you will be able to structure a deal that is intriguing to them.
The accounting records of the target have to be accurate and your due diligence to verify them needs to be comprehensive. Many deals fall apart after extensive time has been committed for the simple reason that the target’s financial records do not reflect their true activity.
This is a potential problem of both buyer and seller. Management is so focused on doing a deal that they forget to manage their business. This can cause many problems such as reduced sales, lower quality of product/service and possibly internal resentment of the resources being allocated to the deal. The seller will also make decisions that are based more on improving metrics that they believe will enhance their valuation rather than beneficial to the long-term success of the business.
The bottom line is that Mergers and Acquisitions are a tremendous opportunity for growth and improvement, but in fact often fail. BSB has the experience to help yours be one of the success stories.