Buyers Need to Prepare for the Market, Too

Imagine that you’ve found your ideal acquisition target but the company’s owner is skeptical about your ability to successfully integrate an acquisition into your current operations — and you aren’t capable of answering all of the owner’s hard questions. The seller would be justified in going with another bidder. 

You can prevent such a scenario by ensuring you’re in as good a shape to buy as the seller is to sell. In fact, it may be necessary to whip your company into shape to qualify for financing — and doing so is likely to ease the post acquisition integration process. Even if you’re confident that your company is ready to buy, a self-assessment can help you identify opportunities you might have overlooked.

Financial checks

Like sellers, buyers can benefit from a little financial housekeeping before making a serious acquisition offer. Assemble a team of executives and outside advisors to review the books to confirm that you have the cash to make an acquisition — or can qualify for financing. 

In particular, pay attention to debt loads. Is your company’s higher than the industry average? Does it include loans with high interest rates or maturities that may be refinanced in the near future? To qualify for the best rates, you may need to streamline and reduce debt.

Many sellers have been burned when their prospective buyers failed to come up with the financing to complete a deal. So if you’re competing with other buyers for an appealing target, you’ll have an advantage if you lock in financing before you make an offer.

Integration preparation

Buyers also need to consider their readiness for integration. Review functions such as HR, accounting and IT to ensure those departments are up to date and prepared to absorb a company that may have very different processes and systems.

One of the biggest mistakes some buyers make is attempting to integrate new employees into an environment that’s rife with conflict. Have executives, managers and key employees struggled over the strategic direction of certain units or departments? Are you still trying to integrate employees from a previous acquisition? Are workers disgruntled and threatening to leave or strike? Such cultural issues could derail even the best integration plans.

Reduce to expand

The prospect of adding new employees, products and property provides a perfect opportunity to clean house. For example, if you plan to acquire a company with a more-experienced sales force, consider reducing your own sales department’s headcount, eliminating all but the best performers.

Most mergers result in duplicative units, such as two accounts payable departments. Before you buy, review the efficiency of current functions and earmark those that could benefit from change or replacement — either before or after your acquisition. If, for example, your IT network is antiquated or dysfunctional, you might want to replace it with your acquisition’s newer, superior system and more knowledgeable IT staff.

Instilling confidence

While it’s important to clean up before making an acquisition, you can’t anticipate everything that might turn off a seller or make integration difficult. However, a little housekeeping can help reacquaint you with your company’s strengths and weaknesses and prepare you to honestly and confidently make your case to prospective acquisitions. 

© 2015