The Rules for a Successful Acquisition

As a business broker, I assist buyers in expanding and growing their business. During the initial search period, I often help them identify potential companies that will be successful and fruitful. Before we begin searching for an acquisition opportunity, the client must answer the following questions to help them understand the six rules of successful acquisitions.

1. What is the strategy behind this purchase? For an acquisition to be genuinely successful, the acquisition must be based on a solid business strategy, not a financial plan. If it makes good business sense, then proceed with the purchase. If it only looks good on paper and the "numbers" look good, then take another careful look at the reason for the purchase.
2. Is this about what they offer you or what you offer them? In successful acquisitions, it's not about you and how you benefit from the merger. Instead, it's about how you help the target company improve. Make a list of how your firm improves the target company. If it's shorter than the list of what they offer you, think twice. A successful acquisition must be based on what you, the acquirer, contributes to the acquisition.
3. What do you and the acquisition have in common? Unlike a romantic relationship where opposites attract, commonalities are key to the success of a merger. You and the target company must share a common point of unity, such as markets and marketing, or technology, or core competencies. Just like any human relationship, business relationships are built upon what you have common. Ensure the both of you have a common core to build the relationship upon.
4. What is your opinion of the target company? Do you respect them? If you want to have as smooth as a possible merger between your firm and the target, you must respect them. You must appreciate their business, their products, their services, their employees, their leaders, and their customers. Most importantly, you must respect their values. Remember, you're importing their culture into your company as much as you are exporting your culture. It's a two-way street. Are you ready for the consequences?
5. What is your timeline to provide the best leadership to the target company? You must be prepared to provide top management to the acquired business within a reasonably short period, a year at most. Don't just buy a company and not provide the leadership. That's a recipe for a bad investment.
6. Does this merger benefit everyone in both firms? A successful acquisition must clearly and rapidly create visible opportunities for advancement for both the people in the acquiring business and people in the acquired business. If you don't, you will quickly find an exodus of talent from the target company. Many times, it's the people who are just as crucial as the widget or service they offer. Make it clear to everyone how the merger benefits folks in your firm and the targets.

Run through these questions before you begin looking for an acquisition. It'll help you identify those gems who will genuinely add to your company and be a real success.