When the “why” isn’t aligned
When the primary motivation isn’t clear, it’s time to ask questions. We’ve seen personal objectives supplant corporate ones – not always a good indication if a family member wants to buy at any price for entertainment – so the analysis may not be impartial.
When culture and values are not assessed.
You must look at the nature of the target company. It will have the values of the entrepreneurs in place – they have hired their teams, treat their suppliers in a certain way and have their own business model. Sometimes sellers don’t want to see certain buyers, while sometimes buyers should spend more time on something other than financial statements. What’s the point of buying a company if staff turnover reaches double digits in the first year?
Under-allocating resources to the process
Buying a company is an important decision, and the desire to save costs can have more unfortunate consequences down the road. We’ve seen buyers wanting to reduce accounting costs – well, they’ve been surprised with a limited view of the situation – we’ve seen inventories present, but with low turnover, expenses missing. Being supported by professionals who are not used to doing buy-sell can delay a transaction or increase its risk – we’ve seen demands for change in the middle of the transaction process. The same goes for the integration process and change management – often overlooked.
Ambition… A major challenge
In market definitions, a “tuck in” is a company that represents 5-10% of the buyer’s volume – an easy acquisition. Next come acquisitions that aim to diversify, whether geographically, in terms of customer base, distribution network or sectors – normal sizes are 10-50% of the buyer’s volume. Where questions need to be asked, and where the risk increases considerably, is when the target represents more than 50% of the buyer; get organized! and if it’s the little fish that buys the big fish, good luck!