It may seem like an exciting proposition if your business is being approached about a potential acquisition. However, understanding the primary goals, motivation and purpose of the acquirers true interest in your business is essential from the very beginning before you even get into the financials.
Below, I share best practices business owners can use when doing their due diligence in determining whether a value proposition lines up with their company’s overall core mission and vision for the future.
1. Make sure your business goals are aligned
Acquisitions should always be strategic. Before reviewing details, make sure that the company as a whole aligns with your already established mission, values and purpose. An understanding of your vision and commitment to the continuance of positive growth and development is key.
2. Assess the opportunity, its values and organisation structure
There are various stages to doing your due diligence when reviewing a potential deal. As you qualify your prospective company through each stage, the level of diligence should grow more detailed. During the first engagement, strive to understand the business opportunity, its values and organisation structure. You should also have a list of your deal breakers. If they get through that first stage, the move into detailed diligence should be assisted by finance and legal experts.
3. Review the company’s business plan
A business plan is a must have when considering an acquisition. It will show current processes, gaps and potential for the company’s growth within the sector. It also reveals risks as well as areas for margin increases and reducing costs and time waste. It will show what worked for the company in the past and reveals what approaches are no longer valid.
4. Evaluate the key financials
There are three financial statements that are key for leaders to evaluate during a potential merger and acquisition deal: the balance sheet, the statement of cash flows and the profit and loss account. A combination of these important documents becomes a powerful tool to evaluate a company through financial equations. The four key equation elements are profitability, leverage, liquidity and efficiency ratios. These ratios will tell you the health of the company and any areas of concern.
5. Put the right team in place to represent you
It’s important to use a professional who can represent you in the process. Handling due diligence on your own will be the most costly professional mistake you ever make.
6. Look at the acquirers reputation
Look at qualitative factors like talent retention, culture for innovation and surrounding metrics. A dealbreaker may be any tolerance for corporate misdemeanors. Non-publicly available data research can be challenging. Here turn to personal networks to learn about the reputation of the business and its leadership team.
7. Understand if there is a cultural fit
It is key there is a wide cultural and ideological fit. This cannot be found by going over the balance sheets, corporate social responsibility (CSR) initiatives, quarterly performance reviews and other such information. Instead, the way to find out if this acquirer is a good fit is by reviewing what its customers, employees (past and present) and social media history have to say