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When to Acquire a Company

Whether you already own a business and want to expand, or you want to break into the business world with the acquisition of an established company, there are many things to consider before you begin the process.

Purchasing an established company means you won’t have the struggle of building a business from the ground up and can work on a previously established foundation. However, keep in mind that you could inherit the negatives as well, such as a questionable reputation or deeply entrenched operations that will be more difficult to optimize.

When planning to acquire a business, consider whether the timing and fit are right for your company and if it will help it grow beyond what it could on its own.

Timing Is Everything

There are many points to consider when deciding if the time is right to acquire a business. You will need to evaluate your readiness on a financial and personal level and conduct market research on the industry.

  • Be certain that your fundamental reason for acquisition is because you see a great opportunity for growth. Review your rationale and your knowledge of the industry.
  • Consider the impact it will have on your current business and/or personal life. Do you have the time available to commit to developing knowledge of a new business? Are you ready to oversee operations at your current business as well as the new one? You must be willing to sacrifice many hours to achieve the right balance.
  • Research the market and focus on competition and finances in the industry you are interested in. Think about what options you have within different industries and what is available for sale. Also, note that just because a business is not currently for sale does not mean the business owner would not consider selling.
  • Do you have support of those who are crucial to your business decisions, such as board members, your management-level employees and/or your spouse? The process of acquisition can be difficult and time-consuming; if you don’t have support of those you need to help make it happen, then you may want to try to convince them or reconsider your decision.
  • Measure your financial readiness and decide if the potential return on investment is worth the initial risk. Be confident you are able to afford the initial risk as well as the costs of running the business until profits begin to flow.

Making the Choice

Ensuring that the company you are acquiring is a good choice for you and your business requires a lot of planning and research. Be sure to consider:

  • The current success of the business and why the business is for sale. Through your initial market research, you can find out how well the company is doing in the current market. Although you may not get a complete answer from the owner, try to find out exactly why they are willing to sell, and make sure the problem doesn’t lie in something that isn’t fixable.
  • The reputation of the business. Through talking to customers, vendors and others in the industry, find out if the business maintains good relationships. Read customer reviews online. If the reputation is too tarnished, and if relationships are rocky, it may be too difficult to save.
  • Daily operations. Is there already a flow that exists at the business, or will you have to work to establish many new processes? Talk to employees and staff members and discover if the company philosophy fits with your style of business.
  • Potential ROI. Your initial market research will show the potential growth in the industry, sales, market and more. Consider if these numbers make it worth the investment.
  • Familiarity with the industry. You must have a sustained interest in the industry and consider the industry’s long-term sustainability. Think about how much you will have to learn in the process of adopting this business; it may work better if the company is related to your current business or expertise.
  • Weaknesses or struggles of the business. A lot can be found through talking to customers and employees. You can also learn significant information by contacting the Better Business Bureau. This will give you company ratings, access to past complaints and issues, etc.

Consider creating and meeting with an acquisition team, consisting of your attorney, accountant and banker for advice and assistance examining your finances. This team can help sort out your options and determine what steps you can take.

Ready to Acquire

If you are ready to acquire, check out this guide to walk you through everything from valuation to deal structuring.

Alternatives to Acquisition

If you are not prepared to acquire, or if the timing is not right, you may consider alternatives to acquiring a business.

  • Merge: Similar to an acquisition, a merger combines your business with another existing business to fuse current business activities. Mergers usually occur to diversify or grow a company’s current market and activities.
  • Alliance: An agreement between two parties (often taking form as a Joint Venture) to work together in a mutually beneficial relationship, sharing similar goals and actions. This is usually done to draw more business by sharing marketing strategies.
  • Open a new location for your current business: This allows you to expand your market without the hassle or risk of purchasing a separate company.
 
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