Growing your Company through a Business Acquisition

by Pete Constantino, Cohen & Company

Most companies want to grow. This usually happens through organic growth – adding more customers and selling more to existing customers. The other way companies grow is by acquiring other companies. The right "additions" through acquisition can bring customers in additional geographies, products or services that are complimentary to what you currently offer.

Acquisitions can be complex transactions. With the right approach and the right acquisition team, they can help you grow your top line and your bottom line.

In most deals, you are buying what you believe the earnings stream and cash flow will be out into the future. Determining the right price to pay for the business and the right terms of the deal is essential to future success. Many years ago, I heard the Dealmaker's Credo, "I'll let you name the price if you let me name the terms." Although that doesn't often happen, it shows that there are a lot of moving parts to an acquisition. Keeping them all in view is one of the keys to a successful acquisition.

Top 10 characteristics for Successful Business Acquisitions

  1. Look for the Right Additions. An acquisition done for acquisition sake may not be successful.
  2. Exercise Patience. Acquisitions aren't done in a week or a month, but usually three to six months or more. Knowing that up front helps to set expectations.
  3. Set Your Price. Determine how much you "should" pay for the business and how much you "can" pay for the business (when bidding against other prospective acquirers) to still meet your investment goals.
  4. Stay in the Now. Pay for the revenues and earnings you can see. Sellers will always have rosy projections.
  5. Be Cautious of Addbacks. Be wary of seller "addbacks" to earnings that present the earnings higher than the financial statement or tax return show. In my experience, the longer the list, the more likely they can't be substantiated.
  6. Give Funders Advance Notice. Get your bank and equity partners involved early. You have to allow time for due diligence.
  7. Choose the Right Team — Early. Assemble your acquisition team of internal and external professionals from the beginning — with the right deal structure, terms, funding, etc.
  8. Conduct Proper Due Diligence. Take a much deeper dive into the details of the company you hope to buy. You're looking to see if there are any deal breakers, and also deal adjusters.
  9. Have Realistic Expectations of the Process. Prepare for a few major negotiations and dozens of minor ones.
  10. Generate Good Data. Make your bank's and/or investors' analysis easier by providing them with good data and projections.
Acquisition Process

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