One of the many ways to efficiently grow your business is to acquire other companies, taking over their intellectual properties and customer bases. Of course, there is a lot of planning and hard work that goes into an acquisition, and the process of actually finding a company worth acquiring isn’t always easy.
Every merger or acquisition situation is different, but there are some elements you should consider any time you are looking at acquiring a new company. Here are some of the factors to keep in mind while you’re assessing potential acquisition targets.
- Reasons for selling: This should be the first question you ask yourself when evaluating the company—why is the owner willing to part with it? Is the seller trying to find a new growth opportunity as well, or is this a sinking ship? Are they actually interested in selling the company, or is this just a test to see what sort of interest there is on the market? Carefully consider the seller’s motivations before moving forward with any acquisition.
- Management: What type of management structure does the company currently have? You should consider who is in charge of making the most important decisions for the company, or if there are any elements of the company’s structure that hamper its efficiency. Consider also the strengths and weakness of the management as a whole entity, as well as individual leaders in the company.
- Company versus industry issues: As part of your analysis of the company, you should find any issues that are preventing the company from being as good as it can possibly be, then determine if these are problems that solely affect this company, or if they are industry-wide problems. Obviously, a company-specific problem is going to be much more feasible to resolve.
- Existing financial burdens: What outstanding obligations does the potential acquisition target have with regard to its finances? A significant amount of debt might prevent the acquisition from being profitable or worthwhile for your company. Look out for issues such as frequent late payments to vendors, layoffs or pension/retirement liabilities.
- Performance: How has the potential acquisition been performing in its market? Current market share is important to look at, but go beyond that as well, and consider whether the company has either recently launched or is preparing to launch any new products or services, and what the prospects of those new offerings are.
- Reputation: It may hurt your company more than it helps it to acquire a company that has a bad reputation. Talk to people that work with the potential acquisition, including suppliers, customers, employees and competitors. There are always going to be a few negative opinions, but pay attention to frequent criticism or trends of certain types of criticism that may indicate the business does not have a good reputation.
For more tips about how to conduct a smooth merger or acquisition, contact our corporate planning attorneys in the U.S. Virgin Islands.
Steven K. Hardy is Chair of the Corporate, Tax and Estate Planning Practice Group at BoltNagi PC, a full-service business law firm based on St. Thomas, U.S. Virgin Islands.