By Rhonda Campbell
Acquisition and mergers may be en vogue, but they can also be pricey. Even more, some acquisition and mergers fail, making the business marriages increasingly risky.
Business acquisition and mergers can shorten the time it takes to expand your product and/or service offerings. If you acquire employees from the companies you buy, you can also strengthen your workforce. These are two reasons businesses purchase departments (e.g. mobile technology, financial investment, equipment manufacturing) and/or entire companies. However, in order for business acquisition and mergers to succeed, you must generally conduct due diligence around factors like culture and pricing at companies you’re thinking about buying. You must also research and become aware of anticipated market and industry shifts.
Funding Business Acquisition and Mergers
Even during challenging economic conditions businesses have been known to engage in a flurry of acquisition and mergers. For example, The Wall Street Journal reports in its June 20, 2012 “Clear Channel on Prowl for Acquisitions” that the communications firm has expressed interest in acquiring companies in effort to strengthen its outdoor advertising offerings. Coming off the heels of the Wall Street Journal article was an announcement in the June 25, 2012 Bloomberg “Hershey to Make Acquisitions Priority for Use of Cash, CEO Says” that revealed Hershey Company sees acquisitions as the “priority for the chocolate maker’s cash as the company looks to take confectionery-market share in North America and expand abroad.” In fact, Hershey is noted as having its sights on as much as $10 billion in local and regional business acquisitions worldwide.
Despite the fact that these experienced business leaders know acquisition and mergers can yield profitable growth shortcuts, more companies may be shy about heading up acquisition and mergers for fear that they will not have the finances to complete common business acquisition and mergers deliverables. Some of these common business acquisition deliverables are:
- Planning, including identifying employees to lead acquisition teams (e.g. technology, legal, finance human resources)
- Touring company to be acquired
- Determining purchase price
- Preparing purchase agreement
- Conducting legal reviews
- Meeting with managers and employees of acquired company
- Preparing agreements for employees and contractors, including non-compete agreements
Business Acquisition and Mergers Components
To complete these and other deliverables, components at your firm and at the firm you’re interested in buying must be examined. Some of these components include computer systems, job descriptions, employee compensation and benefits programs and finance programs. This examination requires workforce hours, which can turn into hundreds of hours of overtime pay, particularly with a large business acquisition. Depending on details outlined in the purchase or deal agreement, as the firm acquiring another company your firm may also have to cover travel, legal and administrative costs associated with the business acquisition. At the least your firm, will have to pay for travel, legal and administrative expenses incurred by your employees assigned to acquisition and mergers teams.
In many ways acquiring another company, department or division is similar to buying a house. Members of your acquisition team have to physically walk through the new company to ensure the deal is worth it. You also must sign legally binding documents, similar to what is required when you sign a mortgage agreement
Again similar to when you buy a house, the amount of working capital your business has may not be enough to pay for all business acquisition and mergers expenses. In this case you could sell stock if you lead a publicly owned firm or you can seek financing from individuals and businesses that invest in start-up companies and firms positioned for growth. You can also work with banks and other financial services organizations to secure sufficient funding to allow your firm to move forward with acquisitions that can increase your company’s profits over the next several years.
Sources:
http://online.wsj.com/article/SB10001424052702304765304577478482071666836.html (Wall Street Journal: Clear Channel on Prowl for Acquisitions)
http://www.bna.com/mergers-acquisitions-conference-new-york (Bloomberg BNA: Bloomberg BNA Offers Two-Day Update on Tax Strategies and Techniques for Structuring Mergers and Acquisitions)
http://www.bloomberg.com/news/2012-06-25/hershey-to-make-acquisitions-priority-for-use-of-cash-ceo-says.html (Bloomberg: Hershey to Make Acquisitions Priority for Use of Cash, CEO Says)
