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Avoiding Acquisition Pitfalls: Stick to the Basics

25 Oct Avoiding Acquisition Pitfalls: Stick to the Basics

Acquiring the right business can expand market share, diversify product or service offerings, improve distribution, and enhance sales and profits.Yet at the same time, a business acquisition can carry a substantial amount of risk that even seasoned business owners can fail to adequately address in the heat of forging the deal.

Even seasoned business owners can become so passionate about the deal itself, no one is adequately measuring and addressing the inherent risks associated with the deal. Follow these time-proven, recommended tips for managing risk of your acquisition:

1. Stick to What You Do Best. It can be tempting to jump into a whole new market simply because it is getting a lot of hype. But don’t abandon your carefully planned growth strategy for the lure of an entirely new product or service simply because it has become the flavor of the day. If a company is not specifically aligned with what you already know, be very cautious about acquiring it, even if it is available at a good price. All of the challenges that come with an acquisition between two well-matched companies will still be there, only magnified, and accompanied by the monumental challenge of becoming a competitive player in an unfamiliar arena.

2 . Manage Business Cultures. Matching business cultures is probably even more important to success of an acquisition than aligning products and services, but few acquisitions have ever been called off because a culture assessment revealed the business cultures of the two companies were incompatible. Since differences in business culture are not likely to put the brakes on an acquisition, consider incompatibility levels before the transaction gets started. Failing this, it becomes the job of management to assure  differences in business culture do not undermine the transaction. Have a plan in place to address culture differences as early into the process as possible.

3. Perform Adequate Due Diligence. The due diligence process should uncover any problems or  challenges that could impact the positive outcome of an acquisition. It is probably a toss-up as to whether clashes in business culture or failure to perform adequate due diligence are to blame for the majority of acquisition failures. Choose people who are highly experienced, completely objective and truthful for the process. Arm yourself in advance with a “plan B” for the many facets of the transaction that may not go as anticipated.

4. Provide Leadership. Like a business, an acquisition transaction takes experienced day-to-day leadership and management. Before taking first steps, consider the time involvement and be realistic about whether you can adequately manage and lead the transaction while still maintaining existing operations and obligations. If you have reliable people to help with either the transaction or current business operations, engage them early. Your expertise and approval will still be necessary along the way, however.

System conflicts, brand management challenges, synergy shortfalls and business misunderstandings can all occur in the midst of acquisition, but following the tips above can minimize emotion, and avoid potential pitfalls during and following the transaction.

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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
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