10 Tips for Successful Small Business Mergers and Acquisitions

 

For either option, there are several guidelines that you should follow in order to make your expansion plans fruitful:

 

 

Begin by determining whether or not your firm has the necessary level of liquidity to facilitate a successful transaction. If so, consider if your capital structure is capable of sustaining the financial implications of the proposed transaction. Should this not be the case, find a suitable funding strategy that will enable your firm to be better positioned for the transaction.

 

 

Here you need to list those things you wish to achieve after going through with the transaction. Perhaps you want to increase your market share; access new markets; acquire new products/services; increase your economies of scale; eliminate competitors, etc. These objectives are what you should use to find the most suitable prospective target, and, inform your decision-making throughout the transaction process.

 

 

You need to get solid advice on how to proceed at this point. A reputable business transfer agency will help your human resource and legal teams to prepare for the prospective transaction. A fine specialist corporate lawyer will also be vital team member. You most definitely want to involve your bank; get in touch with your relationship manager and ask for guidance concerning the structure of the deal.

 

 

Armed with your list of objectives you can now proceed to screen the prospective targets. You basically want to find another business owner whose objectives are not too different from yours. To do this you should mull over various critical aspects including organizational, operational and financial considerations. If you can find a target prospect whose vision of a combined organization is more or less similar to what you have in mind then you just might have found a winner.

 

 

 

Due diligence is so much more than a financial audit. Your aim here should be to evaluate how much of a strategic fit the target is. In addition to the financial component, therefore, conduct due diligence on the target’s operational, legal, technology, people, and clientele factors.

 

As much as possible try to identify the things that can hurt you after the deal is made. Here you should think about debts, tax issues, supplier contracts, employee contracts, legal proceedings, etc.

 

 

There are various ways through which you can pay up for an acquired company including cash, seller-held financing, product, stocks, and various contractual agreements. The form of payment you opt for should be informed by your firm’s cash flow status, credit health, and, where applicable, intellectual property rights and copyrights.

 

 

One of the most fundamental aspects of a merger’s success is an agreement by both principals to not compete for the same market. This compromise is significantly vital in ensuring the future business success of each entity. You and the target will therefore need to sign a legally binding noncompete agreement that is designed to benefit the new business.

 

 

Another fundamental aspect of a merger’s success is the requirement for both owners to agree on who will have the final say. Basically, each owner should know what his/her percentage stake in the new entity is.

 

Similarly, you will both need to agree on the new company’s name. Will it be a combination of your current names? Will you go for a totally new identity?

 

 

Mergers and acquisitions transactions are typically implication-riddled right from the initial stages. You’ll therefore need a team that is adept at transaction assessment, investment completion and performance forecasting, as well as ensuring that the new entity gets off to a smooth start.

 

 

Keeping your key staff in the loop is very important. You’ll need to consider what you’ll communicate though, considering that some details need to remain confidential.

 

Ideally, your employees will want to be reassured that the impending merger or acquisition will not result in radical changes to their lives and livelihoods. You should therefore let them know how new positions will be filled, the staff retention policy and criteria, how procedures and knowledge will be shared, how their pay will be affected, how cultural issues will be resolved, what the new career paths will look like, etc.