10 Factors To Consider When Making An Acquisition
You might be attracted by the brand or the people, but how does acquiring this company fit into your strategy?
Acquisitions always make for great headlines, and they help solidify your company's competitive position. It is a huge investment, not just in monetary terms, but also in terms of the time involved in the transactions. Property Finder is the leading digital real estate platform in the Middle East and North Africa region that facilitates the house hunting journey for both buyers and renters. Founded in 2007, the website has evolved over the years as the go-to platform for developers, real estate brokerages and house hunters to make informed decisions on all things real estate.
A UAE-born startup, Property Finder has branched out of the country's shores and operates in a total of seven markets, including Qatar, Bahrain, Saudi Arabia, Lebanon, Egypt, and Morocco, and has a significant stake in the second largest property portal in Turkey, which has over 6 million monthly visitors and more than 18,000 real estate agents. The property portal employs over 450 employees globally, of which 204 people work out of its Dubai office, and generates over six million monthly visits as a Group.
US private equity firm General Atlantic led Property Finder's latest round of investment of a total of US$120 million in 2018. This is being used to hire further exceptional talent and investing in its technology and product capabilities. In April 2019, Property Finder announced the acquisition of JRD Group, owner of JustProperty.com and broker CRM solution PropSpace, following an increased investment to 40% in Turkish portal Zingat in April 2019. Late in 2018, Property Finder's Bahraini portal acquired Bahrain Property World to add to their portfolio. Previous to the recent investments and acquisitions, in 2014, Property Finder acquired eSimsar.com, the top property portal in Saudi Arabia, while in 2013, the Group bought out realestate.com.lb, the number 1 property portal in Lebanon, and lastly, the acquisition of Selektimmo, a Moroccan portal, to pad out sarouty.ma, Property Finder's Moroccan offering, in 2016.
Close on the heels of their recent buyouts and investments, we have rounded up 10 factors to consider when making an acquisition- there is so much to consider before signing on the final dotted line!
1. Look at the rationale behind the acquisition
You might be attracted by the brand or the people, but how does acquiring this company fit into your strategy? How will you justify it to your investors, and, more importantly, does it support your overall vision and mission? Do you want to acquire a new product that opens a new business line? Do you want to conduct an acquihire, meaning you acquire a business mainly for the team that drives it? Often, companies acquire others because they can, or because it's cheap and are excited about the PR and buzz it'll generate, but don't spend enough time discussing the strategic reasons.
2. Study what you're acquiring
What is it that you're actually acquiring. Are you acquiring a brand, a team, a group of customers, a product, or all of the above? You're also acquiring their liabilities, including those they haven't told you about, and ones you'll find out when it's too late.
3. Have a third party as a mediator
When negotiating the terms of an acquisition with the target, it is always valuable to use a third party to mediate this negotiation. In general, the negotiation is a sensitive time where emotions are involved. If you have founders involved, there is a good chance that both parties (buyer and seller) will eventually keep working together after the transaction, and you want to avoid as much as possible to hurt this relationship at the beginning.
4. Manage expectations well
An acquisition transaction always takes much longer than expected. The earlier all parties with less experience are aware, the better it is for the process and end result.
5. Get to know the team management
Use the due diligence process not to simply tick boxes on a list, but to get to know better the management of the target who will eventually be part of the acquisition, and deliver on the promises presented. You also need to assess the team that you will work with before acquiring a business. Managing the people in the targeted company should be high on your to-do list. Recognize the talents you need to retain who are crucial to the business, and who you'll be bringing in to run and lead the newly acquired business. Understanding soft skills is crucial to a successful M&A.
6. Have a proper integration plan
You have to work on an integration plan before the acquisition. Ensure that you either have a dedicated team for the integration after acquisition, or that your management is aware that a reasonable part of its time might be allocated to integration. A proper integration plan also defines clearly some short- and mid-term objectives to deliver. Seek external help as certain third party providers are experts in this field. The vast majority of acquisitions fail because of a lack of focus on integration.
7. Focus on human capital
Human capital is the most precious asset in most transactions. Never underestimate the impact on the employees of both entities, especially the target. During your pre-acquisition work, you need to focus on the immediate and follow up messaging to employees, convey a message as clear as possible, and ensure they are the first ones to know about the acquisition, before clients and the press.
8. Impact on financials
Study how this acquisition will impact your financials. Will it increase your revenues? Will it improve or reduce your profit margins? Also, look at the growth trajectory of the target company: Is it growing faster or not as fast as you? If you buy a company that's going to slow your growth, that will affect your overall valuation multiple.
9. Consider the pros and cons of a new market
Is the acquisition in a new territory? New markets come with complexity, communication issues, different currencies, regulations, employee rights, IP, geopolitical risk, and the list goes on. Analyze whether it is really worth going to a new market: is that market big enough to justify all the mentioned headaches?
10. Analyze line of business
Are you buying a company that is in the same line of business, or one you believe is in the same industry but on digging deeper, you realize their model and unit economics are quite different. If you're buying a complementary business, how will the two business' interact? What happens to customers who use the service of only one company, as opposed to those that use both? What is the new commercial strategy and messaging to customers?
In conclusion, acquisitions are harder than they appear to be. PricewaterhouseCoopers claims that 68% of acquisition fail, or don't deliver the expected returns. That's usually because they have forgotten to cover one of the above points, and they haven't put in enough time and effort to build a postacquisition strategy. But when they work, they are transformational, and yield amazing returns. As a famous line in the M&A jargon puts it: 1 + 1 = 3!