83% of mergers and acquisitions fail to give the desired return. So, even if acquiring a new company might sound thrilling, it isn’t always profitable for many reasons. As a result, CEOs need to consider a few crucial factors before acquiring another company.
This short but informative guide will focus on seven factors CEOs need to consider before grabbing a new company. These ideas will ensure you make the right decision regardless of emotional attachments. Let’s get started.
7 Factors to Consider Before Acquiring Another Company
We will briefly summarize the factors so that you can understand the importance.
Choosing the Right Company
Acquiring a company just because you can or love the brand won’t give a good result. It’s essential to identify the right acquisition target. The main objective of acquisition should be in your favor. Often, the companies on sale might not be a good fit for the acquisition you are planning. So, it would help if you didn’t focus on those companies only.
Instead, find some companies that are parallel to your line of business. Then, when you find a company fit for the acquisition, you can approach them with a solid offer they might fear rejecting. It would help if you prepared for the lengthy discussion before the acquisition.
Finance Always Comes First
Whenever you acquire a company, it will cost you a lot of money. If you have investors, you must show logical reasoning behind making the acquisition. You also need to consider the additional cost after the operation, salaries, etc., and the potential profit the new company will make.
It is wise to run a full audit of the company. The audit result will give you a complete idea of the current state of that company and how profitable it will be after the acquisition.
Acquiring the company will only be feasible if all the parameters are positive.
Don’t Compete to Acquire
When the prospects of an acquisition seem hopeful, there might be multiple parties competing with each other to win the battle. In such cases, the acquisition cost often goes higher than it should. So, you should pull the rush and watch out for things before making the final move.
Don’t involve yourself in the egoistic battle of CEOs where you might need to spend a fortune for the acquisition. Know where you should make the deal and where to back off.
Analyze the Company Culture
As the acquired company goes under new management, the existing workforce might face a drastic change in the office culture. So, it would be best if you analyzed that company’s culture before making an acquisition. This reduces the chances of failure in the long run.
Check how things are done in the other company and compare that to your company. Determine the cultural difference to decide whether it will be an excellent decision to acquire that company.
It is better to acquire companies with a similar culture to yours and a similar vision. The workforce is easy to motivate in such cases.
Change in Roles
As you already have a company with many employees, managing the new employees from the other company might be a hassle. You need to find out the talents from the human resources of that company to fit in the correct positions. There can be changes in both your company and the acquired company. And you might want to add or subtract positions in both companies to improve the management.
A clash mostly begins with the high-level management employees from the acquired company. They were the bosses in that company and might not want to work in a regular managerial position now. A good CEO should be intelligent enough to mitigate these issues to keep the workforce united.
Plan an Efficient Integration
While the acquisition process continues, both companies should be running on their pre-defined tracks. Profit is ensured if you can plan and execute an efficient integration. For this, you need to have a good plan. Often, planning the integration is done better by third parties or mediators.
If you are confused about the integration plan, you need to have a contract with a mediator who will deal with the integration so that you can focus on the rest. This ensures both companies are merged without any interruption in their standard process.
Set Specific Goals and Share Them
You should clarify the main objective of the mergers and acquisitions to everyone related to both companies. This will help eradicate the confusion of the employees and boost their morale to work for the new goals.
For example, you might share the course these companies will take after the acquisition. You might set new targets for the employees to achieve in a certain period. And you might also share the benefits of the acquisition for both companies so that everyone gets motivated to make constant progress.
Acquiring a new company isn’t just about transferring the money and signing the deal. As a CEO, you must consider several things to ensure the acquisition will be a logical and profitable decision.
We mentioned some of the most crucial factors you need to consider before mergers and acquisitions to make them succeed. Take some time to understand and implement these tactics to get a better outcome from the acquisition with the least hassle.