Business acquisitions can be an excellent way for a business to tap into new markets, expand its product or service lines, enjoy the benefits of economies of scale, and gain the upper hand over its competitors. Tools like a virtual dataroom can make the acquisition process more efficient. There are also other practices that can guarantee the success of an acquisition.
Here are five best practices for business acquisition:
1. Establish Your Motives for Acquisition
Establishing your reasons for acquiring another entity can make it easier to develop your acquisition strategy. Some reasons for acquiring a business include the following:
Market Expansion
Investing in a new business can allow companies to expand their market reach, improving their profit margins. Some companies want to grow vertically by providing goods or services in other parts of the supply chain. Others aim for horizontal expansion by increasing their products and service lines.
An example of vertical expansion is a vehicle manufacturer acquiring a car dealership or a production company acquiring the entity that sources its raw materials. A company aiming for horizontal integration may buy a similar company in another country to widen its customer base.
Talent Acquisition
Other companies are motivated to acquire new entities to secure new talent for their teams. An IT company may integrate with a software development company to profit from its product developers.
Advanced Technologies
The competition may sometimes have better technology. Investing in a company with better tech levels the playing field. Access to advanced technology may cut costs, accelerate growth, and improve a company's bottom line.
2. Do Thorough Research
After determining your motives for acquisition, it is easier to establish potential targets. Merger and acquisition (M&A) databases are a good place to start when searching for target companies.
Investigate your target companies before initiating contact. You can find most companies’ information in public records, such as intellectual property applications, property registrations, and SEC fillings.
Get information about a company’s financial standing and determine whether you can afford to acquire it. Look into your targets’ market share and watch out for red flags such as lawsuits and non-compliance.
3. Build a Talented Team
You may need a team of experts to guide you through the acquisition process to start on a good foundation. Some professionals you'll need in your acquisition team include an accountant, a lawyer, a financial analyst, and IT experts.
The people on your team should have the experience required to analyze potential deals and understand the legal requirements and financial components of a business acquisition. Your team may find any information you may have missed when researching your target companies.
The financial experts on your team can help you make projections based on your target companies’ past performance and determine the economic viability of a deal. Your legal team may inform you of the legal repercussions of an acquisition deal and guide you on compliance issues. It can also help to hire a public relations expert to help navigate communications with investors, employees, and customers.
4. Get a Virtual Dataroom
Company buyers access large volumes of confidential documents during the due diligence process in an acquisition deal. Most of this information is sensitive, and buyers must store and share it securely.
A virtual dataroomcan provide an effective solution for securing and sharing sensitive documents and information. Virtual data rooms have multi-factor authentication and advanced permissions that can allow you to control which information different parties in the deal can access, promoting data integrity.
You can share documents in a virtual data room, reducing trips to the seller’s premises. The tool also can cut costs during the deal review process since it eliminates the need to carry bulky paper documents.
5. Prepare for the Transition
The transition from one company to two integrated companies can be tricky. You must merge your finances, operations, human resources, and cultures without affecting business performance. Plan for the integration before you close the deal to make this process faster and smoother.
Consider potential problems that may arise from the acquisition and develop a contingency plan for possible challenges. Create milestones to measure performance after the purchase and establish incentives to engage and encourage cooperation from new team members.
Have a plan that enables you to build trust with your new team and customers while gradually introducing changes. After the acquisition, maintain transparent communication with company leaders and employees to address any concerns.
Enjoy a Smooth Business Acquisition
A successful business acquisition requires a well-thought-out plan and tools, such as a virtual dataroom for secure information sharing. Companies that succeed in integrations are keen on the aforementioned best practices. An acquisition can yield significant growth for your business if you establish a solid foundation through strategy and planning.
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