As important as they are, acquisition and exit strategies are very rarely paid the attention they deserve. At the very inception of a business, the last thing on an entrepreneur’s mind is how he plans to exit the company, or what kind of acquisitions would further the company’s growth. And yet, a good acquisition and exit strategy is the beacon that every entrepreneur should always set his sights on, just because the volatility of today’s business market and the pace at which businesses go through their entire life cycles has changed drastically, changing today’s business ecosystem with it.
There is an ocean of difference between exits and acquisitions; however they share some common ground beginning in the change they bring about in the businesses they involve. Often if not tackled well, change can potentially be the undoing of a company, especially during acquisitions and exits. Take the ill-fated merger of AOL and Time Warner – one of the primary reasons for its failure was attributed to ineffective management of cultural and organizational change. It is also important to note at this point, that at key junctures such as these, the talent in a company…the organization’s backbone, needs the right kind of change management. This is a fact that is often ignored. Change management isn’t some magic elixir that your HR team should have to ‘figure out’ and put ad hoc measures in place for, once a deal has gone through.
Keep in mind, that we’re talking about the coming together of two different company cultures here, two beasts that in all likelihood have completely different processes in place, different ways of working and for all practical purposes are different in nature. For me, putting in place the right kind of change management strategy and executing it well is a primary factor when preparing for either an exit or an acquisition.
There are a number of other factors that need to receive their share of attention; I’m going to break them up into separate strategies for exits and for acquisitions.
So you’ve decided (for whatever reason), that you’d like to exit the business and either merge with or sell to another entity. Here are a few things you must keep in mind as you take the next steps in your journey.
Get Your Affairs in Order
This is an exercise that I would advise you to be as diligent about as possible. If needed, involve the experts – investment bankers, tax advisors and attorneys to help you through this phase. You can make sure that the sale goes through without any snafus by simply doing your due diligence, and making sure that you’ve sorted through your company financials. Make sure all taxes are filed, that there are no outstandings and that you’ve cleared any hurdles that may hamper the deal from going through.
Evaluate your Options
It is always wise to study the market, plan well and then evaluate your options before making an exit. Without letting your emotions or any external factors drive your decision, answer these questions for yourself:
- Is the market and your business currently ripe for the undertaking?
- Do you plan to make a complete exit from the business?
- Or would you like to just sell a percentage stake? If so, what percentage and which business units would you like to sell
- Do you still intend to stay associated with your company in the same capacity?
These answers will help you evaluate your options for potential buyers, and a bunch of other factors. Keep in mind that the terms of the deal are often more important than final valuation, and how much you will earn out of the deal.
Assess Potential Buyers
This is an extremely important step, especially if you don’t already have a prospective buyer. Understand that this exit will impact your company’s brand long after you have gone, and make the right choice by studying the players that are interested in the sale and picking the right one. Look at company profiles, identities and missions, but most importantly, look at company culture and values, because this is what is going to affect your workforce more than anything else.
Analyze the Human Capital
During an exit, companies and their management often tend to focus so much on the legal and financial details of the deal, that this bit is often ignored. Never forget what makes companies great – its talent. If you are retaining some share of the company, you may want to restructure your teams, so that you don’t end up losing the best and brightest of your talent, in case you plan new entrepreneurial forays.
Be Transparent and Communicate Effectively
Last, but most importantly, communicate transparently and effectively throughout the entire process. As much of the workforce enters what is likely previously unchartered territory, a good communication plan can go a long way in assuaging doubt, distrust and employee concerns. It is prudent to work with your HR team to come up with a good communication strategy, along with a timeline of what needs to be conveyed to whom, and at what time. Remember that this is a big chunk of change management, and as much as it is a function of leadership, it needs to happen in a top-down manner.
If you’re planning a merger or the acquisition of another company, you have to factor in several key points. To begin with, examine the decision of why you’d like to go through with this deal. Are you buying out a competitor to eliminate them from the market? Is this deal going to actually benefit the business in the long run? Once you are sure of the reasoning behind the deal, you will be better equipped to plan strategy and get the ball rolling.
Complete Your Due Diligence
I’m sure, I don’t have to cover examining the fine print here. The larger picture however is to make sure you study every nook and cranny of the business you plan to acquire. Look through every skeleton in the financial closet, and understand the impact it may have on your current business. Examine the debt you are absorbing, if any, and its implications on your financials. By completing your due diligence and factoring in the standard metrics of accrued debt and EBITDA, you will ensure that you maximize the profitability (net profit margin or operating profit margin) that you derive out of an acquisition. Carefully evaluating your options will allow you to make the most informed choices before you proceed.
But due diligence does not stop here. Make sure you also study the culture of the company you plan to acquire to make sure the workforce is a good cultural fit. Arm yourself with a change timeline and a transition plan, while keeping in mind the new workforce you are inheriting. If possible, even take time out to get to know the workforce of the company. Mergers and acquisitions have been proven to be most successful when the culture and values of the two organizations that are coming together are well aligned.
Plan Efficiently and from Early On
Nothing gets done without planning well, especially when we’re talking about buying companies worth millions, or in some cases, billions of dollars. Planning an acquisition from early on credits leadership with foresight, and ensures that the business gets the best possible deal. The planning process ensures that the entire affair goes through without any hiccups. This process could sometimes span months and even years, and involves preparing all angles including everything from changes in internal and external processes, legal and financial decisions, and operational commitments.
Talk the Walk
Make sure to have a proper communication strategy in place when preparing for an acquisition. You will also most likely have to deal with the media and several stakeholders, so make sure you’re prepared. A good communication strategy says a lot about a company and its management and leadership, and will assure your employees and other key stakeholders of the fact that you are attentive to the business’ needs, and to how this acquisition is going to affect them. Always focus on creating value with your stakeholders. I cannot stress this enough. Acquisitions are a time of upheaval for everyone involved, and you do not want to give them any reason to lose faith.
In summary, an entrepreneur needs to always remember that it’s the people that make companies; it’s imperative to ensure that the entire transition is a smooth sailing one for both your people and company so that the brand continues to be associated with the same high standards of quality that it always did.