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Wednesday, August 15, 2012

Mergers and acquisitions take thought and planning


In a recent discussion with the CEO of a private company, an acquisition became the dominate topic.  Starting a company and spending years building a business means the founders put their lives into the business.  They want the business to succeed and the team to participate in the rewards of any successes.  Time is always a factor and when the time reflects on your age and considerations of retirement, succession planning or selling the business become a stronger consideration than in the earlier years.

The business becomes part of your family and you see the business as something you grew from infancy.  Those that supported you in the business growth are friends and family.  When two business owners initiate a discussion regarding a business combination, many considerations beyond valuation become topics.  A few examples are:

·        Will the current team remain for some period to facilitate building the combined businesses?

·        How will the acquiring party pay the departing parties for the business?

·        Will a workout be part of the acquisition strategy?

·        Can the parties get along and work together and for how long?

·        Can they get out of the deal if it seems not to be working?

The decision to combine businesses is a serious one and requires a lot of thought and planning.  The finances and valuations must provide the desired exit(s) for all of the founders.  Considerations of who remains and for how long is important.  Two aging founders creating a combined company need to have succession planning for the remaining business.

A few topics that must be considered before your enter the discussions and began finalizing the details of a combination are more personal.  The following topics are just a few:

Define your goals - Deciding to combine your business with another means one of you will likely depart at some point.  At a minimum, one of you will be running the combined business.  Thoughtful consideration of whether you can be the departing party or no longer running the business is a consideration.  In addition, you may be planning an exit.  What are your goals in the combination and what are you seeking as a return on your years of investment.

Integrating the businesses – Integrating the businesses needs to make sense and there needs to be a purposeful objective.  In combining the businesses, two teams must come together and the cash flows must work.  Combining businesses and not achieving positive cash flows could be a recipe for disaster.   

Valuations – Consideration of individual valuations will take place no matter what.  One company will buy the other or merge.  The relative valuations will determine the final ownership percentages or price to pay. However, the valuations of the combined businesses must make sense.  This is where the sum of the parts should be vastly different from the combined company.  Many utilize the terminology of 1 + 1 is equal or greater than 3. This means that the combined entities should have a significantly higher value than the sum of the two companies.

Future business – Defining the goals of the combined business are important.  The ability of the new business may be able to enter markets neither was able to access before.  Perhaps, they have a difference in sales strategy that will allow for a greater market capture.  There should be discussions and thought on where the newly combined businesses will go in the future.  This is part of developing a combined business plan!  Do you remember the business plan?  You will want one for the new company.

 Have you considered how you feel about not being the BIG DOG?
Taffy Williams is on Twitter by @twilli2861.  Email questions to twilli2861@aol.com. More is available via his company website ,  photo website, or “LIKE” ColonialTDC on Facebook.  You can also find him in the group Startup Group on Linkedin. Other articles are in the Charlotte, NC- small business section of Examiner.com.

14 comments:

  1. Thanks for the post this really going to help both small and large business owners. Through the post owner came to know about succession planning or selling the business and also to establish their business all over the world.
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    1. Nerris, Thanks for the comment. I agree that planning ahead for proper succession is critical. Companies do it, but sometimes not to the level required.

      T

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  2. Really good information that companies should take note of. It is true that you do invest a lot of time (and money) into running a business, and the prospect of a merger (or your business getting acquired) can have a significant impact on you.
    As accountants in Glasgow, we also deal with mergers of companies.

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  3. Truely said-Mergers and acquisitions take thought and planning.I am totally agree with your thought and views.Was a great read.Thanks for sharing.

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  7. Nice blog! Thanks for sharing. This blog is very informatics and interesting.
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  8. Very informative and interesting post.Thanks to share. Mergers and Acquisitions
    is an aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture.

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  9. Thanks to share this post. Merger and Acquisition ensure that you will get the best results in the end if you are selling your business. Proper planning with sufficient amount of time management can give you an effective result.

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  10. Thank you for sharing. Family business succession planning should not be delayed and in most cases it is for fear of creating conflict.

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  11. Mergers and Acquisitions are conditions almost always used together in the corporate world to make reference to two or more organizations becoming a member of to type one business. More often than not a merging is where two businesses of approximately equivalent size and durability come together to type a single business. Both companies' shares are combined into one.

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