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Buying a Business

The best time to start thinking about buying a business is now – while the M&A market is strong, plenty of capital is available, interest rates are low, and the economy continues to improve. Waiting to buy in a down market may offer bargains, but it is also a time of greater uncertainty and risk.

  • Is this the best time to buy? Or should I sell?
  • How much is their business worth?  Mine?
  • Which are the best prospects?
  • How do I negotiate the best price and terms?
  • What are the tax consequences?
  • What is the process and how long does it take?
  • What are “earn-outs” and how do they work?
  • Do I need a business broker? An investment banker? A financial advisor?

The majority of business acquisitions actually fail to achieve the financial, commercial or strategic objectives set at the time of purchase, so if you haven’t already done so, now is the time to step back and think through the entire rationale once again.

Why are you buying? Do you have a clear strategy in mind so the acquisition will add value?  Is it to fill out a product line; expand your market; secure intellectual property; expand production capacity; or perhaps to eliminate a competitor?

If you have already identified a prospect, ask yourself why they would consider selling. Is it simply time to retire? Or is it because the business has peaked, the market is changing rapidly, or their products are facing obsolescence?

Often, the buyer’s primary motivating strategies are over-estimated.  Cost savings are relatively easy to identify and deliver, but sales growth synergies are much harder to quantify and achieve, often turning out to be illusory.Here are some of the pitfalls associated with acquiring a business:

  • Acquisitions that do not solve existing operating problems.
  • Acquisitions that exacerbate poor strategies.
  • Failure to consider the alternatives – including internal development – such as licensing and joint ventures.
  • Flawed understanding of the new business.
  • Misjudging where the market is headed.
  • Failure to uncover problems in due diligence.
  • Overpaying for the business and bad terms.
  • Failure to integrate properly.
  • Lack of clear leadership and cultural fit.

Making an acquisition is very risky – and potentially very expensive – but it can also represent an opportunity to create significant added value.  Anticipate problems.  Best advice? Have an experienced partner who is capable of guiding you through the process.