Mergers and Acquisitions FAQ, Part 2, by Dwight Lester

Dwight Lester, a successful strategic finance executive, shares his expertise on mergers and acquisitions, continued from a previous discussion.

Why should I buy another business instead of starting my own?

There are several advantages to acquiring an existing business instead of starting a new business unit from scratch. First of all, existing companies have a proven concept and a proven track record. They have also developed a network of suppliers and customers, and they have built up the human capital to maintain business operations. Overall, the risk and effort required to acquire a company tend to be lower than for starting a new one.

How do I ensure the best price for my business during the acquisition process?

Enhance the value of your business on as many levels as possible. In addition to developing hard assets such as sales, cash flow, and market share, consider your intangibles. Name recognition will go a long way to increasing the purchase price, so develop relationships as broadly as possible within your industry. Also be sure to invest in management training, so that your staff brings expertise and knowledge that would be valuable to a potential buyer. These factors prove especially important in negotiating an advantageous price for a small business with few hard assets to offer.

Should we acquire the target company’s shares as well as its assets?

This depends on a wide range of factors. Tax considerations may sway your decisions one way or the other, but painstakingly thorough due diligence activities are the only way to ensure a correct decision on this matter. Sometimes, it is more advantageous to simply purchase the company’s assets. Other times, there may be a good reason to buy the shares.

How can we ensure our company’s values are maintained following a merger or acquisition?

No guarantees exist, but your best bet is to develop a comprehensive succession plan. Many small to medium businesses have little understanding of how the company will function after the owner or other chief executive leaves. Although succession planning can be an emotional experience, when done properly, it ensures that the company is built upon a solid foundation of interconnected operations, with multiple backups in place at every level. If such a structure is in place, M&A activities are less likely to completely transform the operations of the company.