There are a few steps you can take to help you prepare for an acquisition. The suggested steps are:
- Write an acquisition plan
- Establish an internal team
- Establish an external team
- Define the responsibilities
- Find the prospects
Write the acquisition plan
The acquisition plan answers the fundamental question: How will your management team and/or your brand equity enhance the profitability of the seller's company? It identifies the value-add and cost-savings that will result from the proposed transaction.
These generally include accelerated growth in revenues and profits, a stronger competitive position, broader existing product lines or entry into new geographic markets or market segments as part of a diversification strategy.
An acquisition plan defines:
- the buyer's objectives
- relevant trends in the target industry
- ways to find target companies
- criteria to be used to evaluate them
- projected budgets and timetables for accomplishing the transaction
- price ranges to be considered
- the buyer company's past acquisition record
- the amount of external capital required to accomplish the transaction
- other related issues.
One of its overriding goals is to "narrow the field" as much as possible. A well-prepared acquisition plan should do the following:
- Provide a road map.
- Inform stakeholders of key objectives.
- Reduce professional and advisory fees.
- Manage the risk.
- Identify integration challenges well in advance.
- Inform target companies of your plans for them after the closing.
Establish your internal team
If you are considering buying a business, you need to develop an internal team. Your internal work team should probably include experts in finance, marketing, strategic planning and operations.
Appoint an external team
You also need an external team of experienced advisors (lawyers, accountants, investment bankers, valuation experts and, in some cases, insurance and employee-benefits specialists).
Define the responsibilities
As the CEO you must also clearly define the responsibilities of the teams and the people on the teams.
- Who has the authority to speak on your company's behalf?
- Who may contact prospective sellers?
- Who may negotiate with the selected target company?
Finding the companies
You'll need to decide whether to use brokers or investment banker to find and evaluate prospects or generate prospects internally, or through networking and industry contacts. Using a broker can save the buyer valuable time and the expense of chasing after the wrong businesses or trying to figure out which companies might be interested in selling.
When and if the company you seek to acquire expresses interest, you will want to act quickly so as to keep the momentum going. Your first move should be to set up a meeting to understand the seller's objectives, pricing expectations, operating and financial performance, as well as to identify any concerns or reservations the company may have. Your goal is to get the information that will enable you to determine a preliminary price and structure a letter of intent that outlines key points of the deal.