A buyer (middle) market: How to grow and thrive through acquisition


By Chris Blees

Guest columnist

Chris Blees is president and CEO of BiggsKofford CPA
Chris Blees shares his M&A expertise by providing tips for business owners interested in growth through acquisition. Photo courtesy of BiggsKofford.

— As past economic downturns have proven, companies that invest heavily in the right kinds of marketing and strategic planning will likely thrive when the market turns around. While companies can grow organically to increase market share, another way to accomplish this — and accelerate the growth curve — is to acquire the market share, products, services and employees of existing businesses.

Why  take on additional risk in a time of uncertainty? Because it a buyer market. Values are depressed, largely due to the contraction of the credit markets and stagnant or declining financial performance. With companies being stress-tested in a very bad market, it is easier to get a clear understanding of what’s likely to be the ‘worst-case’ performance.  At the same time, synergies created by the acquisition could increase the value of the combined operation by more than the sum of its parts.

If you planned on selling in the next few years but just saw the value of your business drop significantly, you could quickly make back some of that lost value to ensure your original exit strategy stays on course.  Actively searching for acquisition targets will almost certainly guarantee a higher level of post-acquisition success than acting on deals that are presented to you by third parties.

Mistakes to avoid

The trick is making the right purchases to benefit the long-term success of the company, but this is easier said than done. In fact,  the majority of acquisitions are deemed unsuccessful, especially in the public markets. But the lack of success is for a reason. Most acquiring companies have made at least one of the following common mistakes:

— Overestimating of the synergies that will come from the acquisition.

— Underestimating of the time needed to integrate the combined operations.

— Failing to appropriately plan for and manage the post-acquisition integration process.

— Overpaying for the business.

— Overleveraging debt and working capital.

— Failing to understand thoroughly the business being purchased.

— Having personal financial gains that conflict with a suitable risk/reward analysis.

Develop an acquisition plan

While the overall economy has certainly had a hand in derailing good deals, the majority of failed transactions are a function of poor planning and bad execution.  Therefore, when considering an acquisition strategy, mitigate the risks by creating and following a comprehensive acquisition plan, which should include the following:

— Understand the business you are in and where you are headed.

— Perform a detailed SWOT (strengths, weaknesses, opportunities and threats) analysis of your existing business.

— Create a strategic plan, taking into account the SWOT analysis, to get from where you are today to where you want to be.

— Involve all critical functions of the business and create an integration team (sales, operations, production, logistics, etc.).

— Define the ideal acquisition target (which will almost certainly not exist).

— Research potential targets and rate them using metrics created in the strategic plan.

— Be selective and patient throughout the acquisition process.

— Undertake thorough due diligence and involve the integration team at all stages of the deal.

— Understand your financial capabilities and required return on investment and stay within these limits.

Following a comprehensive acquisition plan will certainly increase your chances of success.  Growing through acquisition can drastically accelerate a business growth plan, and right now there are bargains to be had. But the process needs to be well planned and executed to greatly enhance the outcome.

Chris Blees, president and CEO of BiggsKofford Certified Public Accountants and BiggsKofford Capital Investment Bank, is an advisory board member of the Chicago-based Alliance of Merger & Acquisition Advisors (AM&AA) and a co-author of “Middle Market M&A: Handbook for Investment Banking and Business Consulting,” scheduled to be released in February 2012. For more information,  visit www.amaaonline.com.