To finish a profitable acquisition, a purchaser must develop a comprehensive acquisition strategy. While all successful strategies have to provide for flexibility, you need to distinguish perfect fit and exactly what to look for in an acquisition target. Taking the time to do this in advance is able to save substantial time and money in the future and offer the template and guiding concept for technique. The acquisition method needs to include such simple items such as business sector, location of target, strategic fit, corporate culture, financial standards (e.g. commission revenue production, loss ratios, retention rates, gross income, earnings, etc.), management strength, geographic markets, transaction structure (e.g. price, earn outs, notes, etc.) and how the deal is funded.
Buyers must be prepared to discuss and explain their rates explanation. The buyer’s potential to effectively communicate and negotiate dependant upon a sound economic model is normally a critical component in going past pricing stalemates. Arguing higher versus smaller is a no win situation. Be ready to make an extensive market as well as local comparison with current rates to help support your valuation rationale. Discuss issues for instance working capital and capital expenditures or additional investment requirements and whether they have an effect on the buying price. Consequently, be prepared as well as do your research so that you are able to greatly articulate your pricing rationale as well as deal structure.
flexible and Creative
to be able to take full advantage of the probability that a transaction is going to be prosperous, buyers have to be creative and flexible when developing substitute deal structures. Alternative structures frequently allow both parties to realize a more effective deal and move most of the center far from a zero-sum pricing argument. Both parties in acquisition negotiations frequently overuse the term “win-win.” But the capability to become flexible and creative typically results in a deal priced and structure which is “fair and reasonable” to both people.
The most popular shortfall in the acquisitions procedure is limited due diligence. When buyers are asked how time was used during the acquisition process, you will typically find that much more time is spent negotiating the deal compared to time spent conducting due diligence. Many post-closing surprises could have been avoided had the shopper performed better thanks diligence practices. Due diligence takes on a lot of kinds but at a minimum, need to include comprehensive financial, legal and operational reviews. At a minimum, your due diligence staff ought to have representatives from senior management, functions, accounting/finance and legal along with experienced M&A advisors. Professional advisors can help you in improving thorough due diligence checklists that help ensure that just about all spots are adequately analyzed.
Too many buyers make the costly mistake of not getting encountered and qualified expert advisors. These include attorneys, investment bankers, and accountants. Purchasers fail to realize that the cost of professional advisors is minimal compared to the cost of an unsuccessful or even poorly executed acquisition. Acquisition expertise shouldn’t be part of the core proficiency of most agency owners and isn’t something they do everyday. Professional advisors deliver the critical expertise and market knowledge that is very helpful in serving a customer complete a profitable acquisition. Over the long haul, the price of advisors, this includes any fees incurred for acquisitions that are certainly not completed, could perhaps be the best investment a purchaser can make. At the conclusion of the day, the objective is to try to do the right acquisition at the right price and terms. Don’t forget the old adage, “penny good, pound foolish” – don’t make this oversight with regards to dealing with expert advisors.
There is typically a tendency for customers to become emotionally involved with a deal as time, electricity and money are invested. Not any transaction should be accomplished, and lots of buyers will be much better served if they will walk out of the opportunity. Often a customer is financially stronger in the long haul by not carrying out the deal. This price is not really measured simply by the price of the acquisition but by the on-going financial and intangible costs which can far exceed the capital investment of a transaction. Keeping an objective view of the potential acquisition and remembering what the key criteria is for carrying out the acquisition is vital.
Many buyers spend far too much time and energy speculating what the seller’s motivation level is for advertising, it actually is not that important. What is important for the buyer to know is exactly what the effect on the agency after the transaction is completed and the seller exits the company actually is. Most sellers will tell you that they’ll stay after the acquisition is done but reality changes after time. Whether it’s 6-months, 1-year, or other time frame, buyers need to be aware the impact on the company, if so when the seller exits the agency. Relationships with clients, carriers, and most importantly employees, have to be understood and strategies need to be set in place to reduce the interruption of the company after the owner exits.
Buying is Selling
A buyer generally has the mentality that in case they offer the top price they will be the successful party. Driving such a view violates one of the most basic principles of negotiation strategy, along with that is, buying is selling. A major non financial concern for a seller is usually to identify the “right” customer and how the customer will treat employees when the acquisition is completed. A purchaser should never lose sight of the need for being respectful and thoughtful during the acquisition process.
Acquisition Agency hire professional advisors as they understand, that while they might be really good at running an agency, offering their organization isn’t an issue they do every single day. Buyer’s need to recognize the task of a seller’s advisors and make sure they deal right with the advisors and not attempt to cut them out of the process. An underutilized strategy is made for the buyer paying the advisors a fee together with the investment price. Purchasers need to recognize that advisor charges are included in the basic “transaction price” regardless who pays the fee. A buyer may well enjoy considerable “goodwill” by offering to pay the advisors charge, which could result in the difference between a successful and failed acquisition. Remember, purchasing is selling!
Nothing Will Change
Buyers often make the error of informing the seller that nothing is going to change after the acquisition. While the purchaser might imagine that such a promise might help in getting the deal completed, sellers often know that change will happen. No person likes change but when properly communicated, results that are positive can happen from change. Be candid with the seller and tell him of the improvements that you expect to make both short and long term. Additionally, get input from the seller relating to the intentions of yours. Getting the seller’s feedback and getting them part of the decision process goes some distance in obtaining “buy in” and helping with the integration procedure.
The Deal is Done
Every person remembers the thrill of closing the deal and pondering the deal is performed. Remember Aol and time Warner at closing and all the good things that had been preparing to happen. While closing the deal is a milestone and one ought to be congratulated on completing the acquisition, the truth of the matter would be that this is the straightforward part. An acquisition is two parts: closing the deal and integrating the deal. Unfortunately, the integration part of the acquisition procedure is probably the most difficult one. Most acquisitions fail, not because of the price paid, but because of the failure to properly integrate the organization financially, operationally as well as from a management standpoint. The one biggest mistake one makes is thinking the deal is completed at closing.
Careful preparation and plan before you get started on your acquisition strategy will greatly enhance the chances of yours for success. Adhering to the fundamental concepts discussed above will help some shopper employ a profitable acquisition approach and avoid many costly pitfalls that some other buyers have encountered.