When the market prospects are looking up, entrepreneurs may consider acquiring a competing company or making a strategic acquisition to bolster themselves for the year ahead. However, one must understand that buying another company is way more than a simple financial transaction. Earlier, Anand Jayapalan has previously spoken about how mergers and acquisitions (M&A) involve a lot of hard work, and one must think many different aspects like sorting out their sales and marketing team, as well as meshing computer systems, before carrying out such a process.
Here are a few tips that can be of a huge help for any entrepreneur thinking about making an acquisition or merging with another company.
- Check the liquidity and financial health: Before entering any transaction, one must determine whether they have enough financial standing by performing a thorough financial health check. Since the Covid-19 pandemic, a lot of companies shifted their focus away from profit and loss statements and toward liquidity. Hence, one should see to it if their business has enough liquidity to carry off a transaction successfully. After the entrepreneurs have determined whether or not they have the liquidity to make and sustain an investment, it becomes important to determine whether the capital structure of their business can bear the added strain. If not then a range of debt and equity capital funding strategies must be assessed to get a balance sheet needed to be successful in the M&A game.
- Have a good team in place: Before closing a deal, one should ideally have an experienced team in place to orderly assess the transaction, complete the investment, forecast its performance, and tolerate sensitivities around the results. Having capable professionals with the ability to envision and solve the challenges associated with integrating the transaction and creating a well-functioning new company is extremely important. If one does not have in-house experts with the required skills, they can always bring in temporary, specialized executive leadership to help them get through the project. On the whole, entrepreneurs must try their best to make sure that the projected benefits, synergies and savings from the transaction can be realized.
- Define goals and success factors: Entrepreneurs should analyze both their competitive position and future objectives when trying to put together the M&A strategy. They should have a good understanding of what exactly they are doing with the business, where they want the business to go and what are the prime business goals. No matter the specific business goals of an entrepreneur, they should focus on them relentlessly throughout the process and align their decisions accordingly. The acquisition must ideally be a way to bridge the gap between the current state of the company and the future state envisioned by the entrepreneur.
Earlier, Anand Jayapalan had mentioned that it takes a lot more than doing simple math when it comes to evaluating a potential M&A deal. When carried out properly due diligence must test the strategic fit of the acquisition. Entrepreneurs should start by considering their goals for the acquisition and the drivers of the valuation. Knowing what they require to preserve will dictate what they need to test for in due diligence.