Acquisition can be an attractive option for business owners interested in growing their business and expanding into new markets. While a successful acquisition can positively impact the bottom line, a poorly planned acquisition can greatly damage a company’s brand and leave the business in a worse position.
In the last two years, Memphis-based State Systems Inc., a privately owned total protection company, has acquired five companies, expanding its reach further into Arkansas, North Mississippi and Middle Tennessee. Bob McBride, president of SSI, knows that approaching an acquisition must be done with thoughtful consideration and counsel, and he offers a number of questions business owners should consider before acquiring another business.
Is our business capable of making this acquisition?
Does the business currently have a stable culture? Is there a recurring revenue stream and a dependable employee base? If a business is in a state of turmoil in these or other areas, acquiring another business will not solve the problems – on the contrary, it will most likely exacerbate the situation. Operations should be running smoothly at the home base before a business looks to expand through acquisition.
What are our goals in acquiring a business, and will this acquisition meet those goals?
It’s important to understand exactly what your goals are for the acquisition and analyze how the move could meet those intended goals. Steadfast research must be done to understand the new business’s customer base, operations, financials and culture, and you may be surprised by what you find. Research may reveal unexpected information that counteracts your goals for the acquisition.
What are the potential pitfalls that could be encountered during the acquisition?
Think about unexpected costs; potential clashes in management, culture or overall structure; and the capabilities of your existing company to take on the business. What key leaders need to be identified in the transition? What education and preparation will be needed for both existing and new employees? How can you ensure that operations will continue to run smoothly in the expanded locations? These are just a few of the factors to consider.
How will we communicate with key stakeholders about the acquisition?
From employees to customers, businesses have a large contingent of stakeholders who will be eager to learn what an acquisition means for them. The news of a merger can oftentimes cause fear and quick reactions if not communicated effectively from the beginning. It’s vital to secure a database of stakeholder contact information for both companies and ensure there’s an effective plan to communicate with all constituents. This reduces the risk that employees and customers will hear of the acquisition through other outlets, potentially causing skepticism and distrust.
Once all of these questions are answered, not only will a business be prepared to move forward with an acquisition, but the company also should have a strong foundation on which to build the newly expanded business.