Buying a Business?

As a general rule, there are two types of buyers: corporate (synergistic, strategic, and financial); and individual. Click the type of buyer for a detailed perspective of that scenario.

Buying a Business: Corporate Perspective

In light of the fact that most corporate buyers have a working understanding of the acquisition process, Arjuna's thoughts relative to this perspective are condensed:

1. Internalize your decision to seek acquisition opportunities.
• What are the motives to expand my business through acquisition?
• Am I considering an acquisition for long-term growth?
• Am I (or should I be) looking to expand my business as a precursor to an eventual sale?
• Am I realistic about the growth and long term plans for my business?
• Have I given careful consideration to the fact that the acquisition process can divert a significant amount of my time as well as the time of my key employees away from our core business?
• Will such a time diversion result in a negative impact to our revenues and overall profitability?
• With businesses currently selling at high multiples, have I considered how my company will pay for the acquisition?
• Do we have sufficient cash?
• Will the assumption of acquisition debt place my core business in a financial bind?
• How can we obtain the required financing necessary to complete an acquisition?
• Are my key employees capable of managing a larger organization?
• Do we have the necessary systems and procedures in place? If not, how long and at what cost will it take to do so?
• Have we developed preliminary operational and financial forecasts in order to estimate the financial position and results of operations of our business subsequent to the intended acquisition(s)?
• Have we been realistic with our assumptions so that our projections are as accurate as possible?
• Do we have the ability to develop accurate assumptions and pro forma's or do we need outside assistance to maintain objectivity and accuracy?
• Have I considered how the culture of an acquired company blends with the culture of our current business?
• Am I willing to reduce my ownership interest in order to obtain the financing required to consummate the acquisition?
• Should I attempt to find acquisition candidates myself, or should I utilize the services and expertise of a professional M&A firm?


2. Should I engage a professional?
• Do I have the time, resources and network necessary to find the right acquisition opportunities?
• Do I have the in house expertise and resources necessary to secure senior debt financing, subordinated debt and/or an equity component?
• How do I best maintain secrecy so that my competitors, customers and employees are unaware of my intentions?
• How much time and patience do I have to seek acquisition opportunities and to perform initial due diligence?
• How much will my business suffer while I am focussing my attention on making acquisitions?
• If I have not done prior acquisitions, how well do I understand the process?
• Realistically, how much assistance should I anticipate being required for the numerous aspects of acquiring a business?
• Will I be dealing with full knowledge and from a position of strength without an intermediary?
• How will I know whether or not I am paying a fair price for the acquisition?
• Do I have a complete understanding of how businesses are valued in today's marketplace? There are numerous ways to estimate the value for a business; but the corporate buyer must focus on overall corporate strategy, industry trends, business potential, overall market value, debt service capabilities, potential synergies, return on investment, etc.
• Is my staff qualified and possess the time required to prepare a business plan, in addition to compiling pro-forma and forecasted financial statements for purposes of the decision process, as well as for securing the required financing?
• Do I want an independent assessment by professionals who can objectively advise whether a specific acquisition makes sense for my business?


3. Engage a professional
• Do I personally know any competent M&A professionals?
• Do any of my advisors have direct working experience with an M&A firm?
• Have any of my associates used an intermediary whom they would recommend?
• Should I check professional associations such as IBBA, M&A Source, MBBI, etc. for a listing of qualified M&A professionals?
• After talking with three professionals, have I found a firm I believe can best represent my interests with integrity, in a quality manner? Do they accept ownership of my vision and expectations?
• Are they a full service firm, which not only specializes in facilitating the transaction, but can also assist me in methods and processes to grow my business once the deal is finalized?
• Do I have faith that they can successfully serve my interests above their own?
• Does my firm utilize interactive web sites such as Bizquest, M&A Source, etc. to search for businesses available nationwide?
• How well established are they and do I feel comfortable with their ability to secure sellers of quality businesses?


4. Work with your professional in an open, candid and forthright manner with full disclosure and cooperation.
• What information can I provide my M&A professional so they have a complete disclosure and working knowledge of my plans and aspirations?
• Have I been candid in my assessment of my ability to provide the required funds and resources necessary to complete the transaction?
• Have I made arrangements for the necessary advisors, especially legal and accounting to participate in the due diligence?
• Have I shared with my professional any changes in my expectation and/or direction in acquiring a company?
• Am I prepared to review prospective acquisition targets with an open and pragmatic mind?
• Is my intermediary providing me with weekly status reports?


5. Do your homework
• Am I dedicating time to study prospective industries and companies as if I were already the owner.
• What is the owner's real reason for selling? Are there any hidden agendas?
• Do I have a strong grasp of the owner's duties and any particular skills that I must learn?
• Does the transaction provide a reasonable amount of time and education from the seller during my assumption of ownership?
• Who are the key employees and what is their attitude towards the sale?
• What has been the average employee turnover?
• How readily available are replacement and/or expansion employees?
• Have I reviewed supplier agreements and stability?
• Do I understand the customer base and how to service and grow them?
• Who are the repeat and/or largest customers? How stable are they?
• Who are my competitors and how do I best compete against them?
• Do I have a complete set of financial statements and has my intermediary completed a comprehensive analysis and recasting?
• Do I feel comfortable that I am dealing with an honorable and honest seller?


6. Structure the deal
• Does this transaction meet with my initial goals and expectations?
• How am I handling the ebb and flow of emotions?
• Am I negotiating an equitable win/win transaction?
• Have I structured the deal realistically with enough capital left to operate the business and meet my income requirements?
• Am I following sound business judgement during the due diligence or am I letting my advisors "what if me to death"?
• Do I have seller financing to strengthen the deal?
• Does this transaction follow my decision process and meet my objectives.
• Does it still feel good? If so, pull the trigger. Also, understand that buyer's remorse is more times than not a natural emotion following the consummation of a major transaction.
• Once the transaction is completed put your vision into action. Remember the old adage, "The biggest men with the biggest ideas can be shot down by the smallest men with the smallest ideas. Think big anyway."