Nov 13, 2012
By John Cho, Partner, KPMG Enterprise
Today, many entrepreneurs are looking at acquisition as a prospective path to growth. This has both its pros and its cons. One pro is that acquisition can have exactly this effect - it will lead to definite growth. One significant con worth mentioning is that over half of acquisitions among small to mid-sized enterprises fall short of expectations.
How come? Because acquiring a business is a painstaking process that is all too frequently circumvented and short-circuited. A lax approach to the acquisition process can lead to a loss of value and uncomfortable surprises.
Do your homework: Gather industry knowledge
Begin by conducting a strategic assessment. This phase of an acquisition is arguable the most vital and the least time-consuming. With that said, it is also the phase that is most ignored by business owners.
How should the assessment be performed? To preserve objectivity, it should be performed by a team of professionals preferably comprised of senior managers coached by professional advisors. Your purpose is to analyze and define
- The company's existing mission and vision
- present goals and objectives
- current business plans and the business' core competencies (basis of competitiveness)
- the business' internal strengths and weaknesses
- the business' external threats and opportunities
- existing gaps between the business' vision and the business' experience
When evaluating your research from an internally-focused perspective, concentrate on the most important strengths and weaknesses that affect growth. Next, begin to evaluate your company's external situation by focusing on markets, customers, supply chain and competitors - really tap into your industry knowledge. Your external assessment might uncover threats from existing competitors and possible newcomers, or it could be a sign of potential opportunities ripe for the taking. Finish with a candid assessment of your business culture, paying special attention to ownership and management style. Ask yourself:
- How do you deal with change?
- Are you prepared to invest the time and capital required to take your business to the next level?
- If yes, is your company capable of planning and implementing the necessary and agreed upon changes in a way that will yield desired results?
Throughout this phase, you and your team may benefit from the knowledge and experience of independent professional advisors. This process will offer you insight into existing gaps between your vision for the business and your current experience.
Some additional questions to ask when considering strategic acquisition options and their financial implications:
- Is establishing a strategic alliance or association with another business the best option?
- Should you consider entering into a licensing agreement?
- Does it make sense to seek equity investment in your own company from another member of your industry?
- Is purchasing (either partially or completely) another business that enhances and/or complements your own operation the best option?
If, after all of your research and strategizing, it looks like acquiring another company is the best way for your company to grow, be strategic when selecting target companies. Create an acquisition target profile that identifies characteristics of the 'model company' and how the company will be able to advance your strategic goals. Consider and asses the following when identifying your ideal target:
- Lines of business
- Business location
- Core competencies
- Estimated growth rate
- Projected rate of return
- Customer base
- People and talent
- Technological capabilities
- Established processes and procedures
Once you have identified your targets, you are ready to move on to the next stages of acquiring a company: planning, execution and completion
. But, before you pull the trigger, remember: acquisitions at their best can create dynamic synergies and at their worst can leach value out of your existing
John Cho is a Partner with KPMG Enterprise™. He can be reached at 416 777 3994 or firstname.lastname@example.org
The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG LLP. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
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