Buying a competitor or another company gives you the opportunity to merge the two company’s strengths and reducing or eliminating weaknesses. Another option is to buy a business that has products or services that complement yours can boon business in a big way. However, the challenge lies in combining the companies’ employees, resources and cultures to turn them into a single company that operates seamlessly. No matter the scenario, owners and executives still need to think about other things before buying the company.
Here are four keys to buy a company successfully:
1. Select a business for the right reasons.
While shopping, you come across a cool gadget on sale. It’s tempting, but you don’t automatically buy it because it’s a great price. You also consider whether you’ll use it, the benefits and how it fits in your life.
Clearly, buying a company requires asking more questions and reviewing more factors. Furthermore, the business should be interesting to you, not just a potential profit center. When you buy a company primarily for its profits rather than how it’ll enhance your enjoyment and business, it’ll be harder to succeed in ensuring the new company thrives.
It’s possible for companies that have polar opposite missions to triumph. Heard of Honest Tea Company? The company strives to offer a healthier, organic alternative drink to the sugary water that’s readily available and cheap.
Guess who bought Honest Tea in 2011.
Unless you knew about it, you and most folks are not likely going to come close. It’s a company that makes big bucks off sugary water and artificially sweetened drinks filled with chemicals.
The answer is Coca-Cola. Had Coca-Cola imposed its values on Honest Tea, the company would not have survived. Instead, the two companies created an autonomous partnership allowing both to benefit greatly. Coca-Cola gains credibility as a sustainable brand. Honest Tea taps into Coca-Cola’s huge distribution network.
2. Look beyond the company’s financials and products.
Imagine pairing a business that requires employees wear suits with one that has a business casual environment. Clothes may sound like a minor detail, but the cultures between the two dress styles may not mesh. What if the companies’ executive management styles were as different as the dress code? Or some other area of business that affects a company’s culture?
Study up on the other company’s history, locations, inventory, customers, employees, organizational chart and cash flow. If the seller comes to you first, find out the motivation for selling.
3. Explore how you can create value for each other.
If you view the acquisition as a “What’s in it for me?” proposition, it will most likely end in failure. A dating couple isn’t likely to jump into a marriage thinking what’s in it for them. They care about the other person and want to do whatever possible to make that person happy. And, in turn, they become content too.
A marriage is more likely to last when both people are invested in its success. The same goes for a business partnership. Yes, your business has the right to consider what it gets out of the relationship. But if that’s all you focus on, then you’re better off not buying the company.
A good way to approach this is to determine what the company wants from you and what it will give you in return. In other words, how do you create value for each other?
Here are the things to look for hints on how the business marriage will turn out:
- Connection: This is one of those things where it doesn’t matter how perfect the companies look for each other on paper. If you’re not creating a personal connection with the other company’s people, then how can you make the partnership work?
- Values: How do your missions and core values match up?
- Communication: How do the two companies communicate with each other throughout the process? Poor or no communication means no go.
- Monetization: Determine how both companies can profit from the partnership. If only one company can monetize from the marriage, then walk away.
4. Be prepared for negotiations.
Bring in a business broker, an intermediary between sellers and buyers of businesses. Business brokers work with these deals all the time, so they can help you do your due diligence. Also before negotiating, you might want to check your financing options such as a line of credit. This gives you an idea of what resources you’ll have for making the buy.
Another company’s products and resources is the main draw when people consider buying a company. Still the company also needs to look at these factors to confirm it’s a good fit:
- Employees: Are you prepared to shuffle the organization chart? What will you do about overlapping jobs? Although it’s a big undertaking, it’ll make sure your company operates as efficiently as possible.
- Building and leasing issues: How will you handle the company’s building and leasing contracts? Is timing a factor?
- Culture: Both companies will need to adapt to each other and it takes time to assimilate the two into one functional culture.
Recall when ACS, Macromedia, EDS, Compaq and SBC were individual companies? Today, they are Xerox, Adobe, HP and AT&T. The AT&T and SBC merger was intriguing as the competitors each had its own stores, products, calling plans and so on.
Combining the two communications companies entailed an overhaul in the company’s organization and some layoffs. The company also had to make decisions regarding headquarters location, buildings, products, services.
Your company may not need to make many changes when buying a company. Buying a competitor with its own products and service is a different ball of wax. It’s not the easy road, but it could be one that leads to new opportunities and growth as the new company would capitalize on both companies’ resources.