When the Target Doesn’t Fit: How to Customize Your Acquisition

The company had lots of raw potential but the prospective buyer was concerned. How well might this acquisition integrate into its own company? After all, the target was physically located 200 miles away and had much less organizational structure than its larger, more established buyer. 

In such a scenario, you may be tempted to walk away and seek a more compatible purchase. Hold on! Working with your seller, it may be possible for you to custom fit a seemingly incompatible company. Here’s how to tailor an acquisition to your specifications, either before or after the deal closes.

Sensing conflicts

Buyers often decline otherwise attractive acquisitions for many reasons, including:

Cultural incompatibility. An established buyer with a clearly defined management hierarchy may be uncomfortable when faced with a start-up structure that may best be called “entrepreneurial.” In such cases, cultural integration can seem like too high a hurdle to clear.

Disparate markets. The target company may have segments or units that participate in markets or industries in which the buyer has no experience, or no interest in entering.

Geographic dislocation. The target may be located across the country — or across an ocean. Although it’s possible to relocate to the target’s location, uproot the target from its present domicile or shuttle executives between offices, cost and logistics would be big issues.

Looking for solutions

To resolve such problems, buyers can work with sellers to create the “perfect” acquisition. It helps for sellers to understand their buyers’ concerns and work to head off potential deal-killers. The goal, if possible, is to align the business’s operations with the buyer’s strategic needs.

Solutions could be as straightforward as selling off, or divesting, a business unit that the buyer isn’t interested in acquiring. Or, if a buyer wants only one of the company’s units, it may make sense to spin off that division and look for a different buyer for the remainder of the company. 

Tackling complex situations

More complex situations may require some restructuring. For example, the buyer may not be interested in acquiring all of the target’s operations. But sellers could reduce personnel levels and consolidate departments or divisions to present the buyer with a more streamlined and digestible acquisition.

Sellers could also accommodate buyers by sharpening their strategic focus. For example, if a buyer wants to acquire certain products, the seller could devote more resources to improving, selling and distributing them. If a buyer has its eye on the seller’s customer list, the seller might want to trim it of extraneous and less-profitable relationships.

It may even be possible for a highly leveraged company to make a deal with a debt-wary buyer. Sellers should look for opportunities to cut costs and raise cash. Reducing the company’s workforce or selling valuable physical and intellectual property assets are some ways to do this. And lenders may be willing to refinance the selling company’s existing debt obligations with better rates and terms.

Making it work

To customize an acquisition, buyers must work closely with their sellers. But it’s important to note that no buyer is going to get everything it wants. There’s only so much sellers can do in a limited time span to suit a buyer’s requirements. In other words, both parties should be willing to compromise and respect each other’s limits.

© 2016