6 Risks to Recognize When Acquiring a Company
August 13, 2015
Acquisitions are a viable growth strategy, but it is important to recognize and plan for the potential risks.
There are no shortcuts to success. Expanding your business requires hard work, happy customers, and strategic marketing. However, there are additional opportunities that business owners can pursue which may assist them in growing their business, such as acquisitions.
Acquisition can be a powerful growth tool because you can procure in-depth knowledge of a previously unknown segment of your industry, expanded products or services, or new and desirable locations. Depending on your specific business model, growth by acquisition can be faster than expanded marketing and sales efforts, as financing may be easier and economies of scale could be immediate. The correct acquisition may catch competitors off guard and allow you to penetrate markets more thoroughly and completely.
While growth through acquisition has the potential for enormous gains, there are also very real risks that should be considered and planned for. Acknowledging and understanding the potential risks that can be associated with an acquisition can help you to determine whether a particular opportunity coincides with your current business development plan.
Risk #1: Failing to Adhere to Your Strategic Vision
As a business owner, you have a vision for the future of your company. When acquiring a new company, it is important to contemplate the immediate and future impact that the acquisition will have on your business. In determining whether the acquisition is right for you, consider how the new company will integrate into the vision you have for your business and whether it will further you along your strategic business path.
Risk #2: Moving Too Fast
Although you may find a company that has a wealth of potential and a price that seems perfect, due diligence is still required in order to determine whether the acquisition will be advantageous in furthering your business goals. Furthermore, a comprehensive analysis of the company will assist you in evaluating the potential risks associated with the acquisition. Always take the time to thoroughly research the company and what it is really able to offer. Look deeper into the company for any issues that might not be immediately visible. Also, consider the steps you will need to take to fully absorb the acquired company. Consider how long the acquisition will take, how disruptive it may be, and how much it might cost.
For example, the company that you seek to acquire may have engaged in previous mergers which were not properly planned and/or executed, and as a result the company may not be fully integrated. Failing to recognize such an issue could prove to be time-consuming and costly. When determining whether a particular acquisition is right for your current business development strategy, performing a diligent and in-depth inquiry into all aspects of a company can assist you in making informed business decisions.
Risk #3: Not Moving Fast Enough
While adequately performing your due diligence prior to an acquisition is critical, it is important to keep your ultimate business goals in mind. Becoming preoccupied with insignificant or minor details could cost you valuable time. Assembling an experienced team of business and legal professionals to assist you in filtering through all of the information and in analyzing the relevant material could help to ensure that a favorable business acquisition is not lost.
Risk #4: Forgetting About Your Current Business
In some cases, the acquisition of a new company can prove to be tedious. As such, you may have less time to focus on the operations of your current business. However, it is still important to make sure that everything in your current business continues to follow its strategic path. Remaining actively engaged in your current business operations during a merger can assist you in continuing to move toward your ultimate business goals.
Risk #5: Looking for Another Deal Too Quickly
This risk is really a culmination of the other risks we have already discussed. Once you have acquired a business, one tendency may be to immediately start looking for another acquisition. While there is nothing wrong with window shopping, adhering to your strategic vision is key. Wait and see how the added business performs, and make sure that your company is running well all around.
Risk #6: Not Having Good Counsel
When acquiring a company, you should also have good counsel on your side to provide you with guidance and advice. Adequate legal representation is critical to ensuring that the acquisition thoroughly complies with all legal requirements and business goals. Further, check the backgrounds of the attorneys you choose to make sure they are experienced in assisting businesses like yours when it comes to acquiring other companies.