My Post-Acquisition Report Card Planning your exit through a merger or acquisition takes a lot of study and preparation. Do your homework.
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Mergers and acquisitions can be challenging, but they're a necessary part of doing business in today's world. In fact, corporations are investing billions of dollars every year in these ventures.
Having gone through a recent acquisition, I can honestly say that it can be an exciting time. It's the start of a new journey and for many it's something we've thought about since we first launched our companies.
However, during a merger, there's a lot at stake, and the experience is usually unfamiliar. Because of this, it can be stressful, and it's often difficult to navigate every aspect of the process smoothly, and seamlessly, like a pro. You may be a professional in your field, and in business, but when it comes to a merger or acquisition, you'll be facing largely uncharted territory.
As one financial analyst put it, an M&A is like doing a 1,000-piece puzzle -- except your right and left hands have never worked together before.
Here's your mergers and acquisitions syllabus.
Overall, I'd say that the acquisition of my company, Renters Warehouse was overwhelmingly positive, and my team was able to handle the process with tremendous skill. Still, as with any new experience, there were a number of lessons that I learned along the way -- things that would have been nice to know upfront, before embarking on the venture.
If you're facing a merger or acquisition, it's important to know what to expect before you take the plunge. It's also helpful to make sure you're in top form for what's ahead. Here are a few key "subjects" that you'll want to brush up on, to help to ease some of the pressure, and allow you to navigate the process with a cool head.
During an acquisition, both companies will want to make sure they're getting the best deal. While the seller will tend to assign a higher value to the company, and the buyer will usually look for the lowest price that they can, eventually you'll have to settle on a common idea of what the company's worth. Fortunately, there are objective ways that you can use to valuate a company. One common method that's used is the Price-Earnings Ratio (P/E Ratio), in which the buyer makes an offer that's a multiple of the company's earnings. Another option is the Enterprise-Value-to-Sales Ratio (EV/Sales), which compares the total value of the company against it's sales, namely how many dollars of EV are created by one dollar of yearly sales.
No matter which method is used, when you receive an offer it's important to do the math, and make sure you're getting a good deal. It can't be emphasized enough how important it is to get your accountant on the phone, calculating how much it'll cost you in taxes from the sale. From a tax standpoint; you could easily end up losing money during a sale if the deal isn't structured properly.
During a merger, make sure you do your research. Try to learn everything there is to know about the other company -- and their history. You'll want to make sure they're a good match for your business. Don't just take someone else's word for it, do your own research. Does the company operate under the same principles that you do? Do your work cultures seem well-matched? I feel that during our acquisition, we took extra care in finding a buyer whose goals and company culture aligned with ours.
How good are you at communicating? The ability to compile and present information to stakeholders is important. During our acquisition, the initial PowerPoint presentation ended up being over 90 pages long. We only had a few hours to bring the buyers up to speed on what we have been doing for the past seven years, and to show them why they should pay a premium for it. The buyers will want to see everything: from capital expenditures and conditions of assets and liens, to liabilities. And you'll need to prepare and package these materials in a way that will give them a clear picture of the company. Looking back, I think this was the hardest part of the deal, to tell you the truth!
At points throughout the acquisition, there may be a number of issues that arise which will demand your attention. Being able to think on your toes and find solutions with a level head is important -- especially during the interview process. At many points I was managing multiple offers, requests, and questions at the same time, which often proved to be incredibly challenging. When meeting with stakeholders, remember, if you don't know something, that's OK. You can always find the information and get back to them later.
Play well with others.
You'll be dealing with a lot of new personalities during the acquisition process, and you're going to need a thick skin. When sitting in the hot seat, you'll be asked lots of questions by the other company as they'll want to make sure what they're buying is real. You can't take things personally, especially when the questions may reveal things that you could be doing better. Remember: they're interested in you for a reason -- you've built a company that's generated their interest. Enough said! Speaking of working with others, I also strongly recommend hiring an M&A advisor, and an attorney, who has lots of mergers and acquisition experience. It'll save you from a lot of hassle in the end. These deals are complicated, so don't try to go it alone.
Finally, it's important to plan ahead. Time is a deal killer, and if an acquisition goes on for too long, there's a tendency for the terms to worsen, and eventually, fall apart. Instead of allowing the process to drag on, take the time to lay all the necessary groundwork up front, before you think about selling. With Renters Warehouse, we received a tremendous amount of unsolicited offers before we were ready to sell. Because of this, we became interested in selling a bit sooner than planned. Looking back, I believe that we could have easily streamlined the process more and perhaps even increased our value if we had been able to plan further ahead. As a general guideline, I'd recommend at least one year of preparations before a merger or acquisition.
Passing the final exam.
While every merger or acquisition is different, being strong in these key areas will help you to face the M&A ready to handle anything that arises. Sure, it'll be a bit difficult at times, but remind yourself why you're doing it. In the end, you'll be able to look back on the process, and find that while it was a major learning curve, the results were worth it. And hopefully, it will be the catalyst that launches you on to a new stage in your career.
Finally, let me be the first to congratulate you on reaching this stage in your journey! If you navigate the process successfully, the day you close the deal will be very satisfying -- the accumulation of years of hard work. Enjoy the next stage of your life.