A Seven-Step Process to Nailing Your Next BIG Acquisition
Guest: CEO Coaching International’s Jim Weaver. Jim is a five-time CEO and longtime YPO member with more than 25 years of successful leadership experience helping both public and private companies grow. He’s also built and grown companies in multiple industries, including software development, systems integration, SaaS, payment processing, and telecom.
Episode in a Tweet: A seven-step process to ensure a successful, and profitable, acquisition.
Quick Background: There’s more than one way to get BIG. If your company is really firing on all cylinders, hitting its targets, and keeping you in the black, an acquisition might be just the thing to take you up to the next level.
But whether you’re looking to buy or sell, it’s critical that you and your team don’t get too caught up in the excitement of the opportunity. CEOs who chase acquisitions like they’re shiny new things to collect risk stretching themselves too thin. A smaller business that wants to sell quick might be too focused on a payday and not as attentive to all the fine print that’s attached to it. A careful consideration of strategy, partner fit, and your long-term goals either inside or outside of this new entity should be what drives this process.
On today’s show, Jim Weaver outlines a well-planned, seven-step acquisition process that will help ensure proper execution, strong growth, and BIG profitability.
Seven Steps to a Successful Acquisition
1. Determine your Why.
So, why do you want to do this? What is your strategy? What are some of the benefits that you hope to gain from the acquisitions?
“It could be you’ve got this product or solution and you want to augment it in some way,” Jim says. “You could also do an acquisition if you’re looking for resources. A company might say, ‘We’re growing dramatically. We’re having trouble staffing some of the success that we’ve had, so let’s go out and find a company to augment our current capabilities.’”
Interestingly, Jim says that most acquisitions are not, in and of themselves, single-point growth strategies. Rather, they’re growth strategies running in parallel to the organic growth a company is already experiencing.
2. Assemble your teams.
An acquisition strategy shouldn’t stall your current business. No matter what side of the transaction you’re on, you’re going to need cash to work through the transition. You might go on a hundred first dates before you find the right partner. In the meantime, your business has to keep operating at a high level.
Jim advises, “Once you make the decision to do an acquisition it’s super important that you have a team that is either dedicated to doing the research on that acquisition, or maybe you hire an outside firm to help you with that.”
Obviously, the CEO is going to be very involved in this process, but you can’t do it all. Contract an investment banker who can help you zero in on suitable candidates. Work with data firms who can augment your in-house analysis. Have your regular corporate attorney get you in touch with someone at their firm who specializes in acquisitions.
This is no different than any other manpower decision you make. Get the best, and you’ll get the best results.
3 Perform thorough due diligence.
Task one for you and the team you’ve put together is a thorough review of potential partners.
“If it’s a public company, then you typically have access to a significant amount of information through public records,” Jim says. “If it’s a private company, it’s a little bit tougher. I do like to try to learn as much as I can, and that would be doing research that I can do independently as well as talking to people who may work with or know of the company to find out as much as I can.”
Again, don’t let the opportunity blind you to potential problems. Keep asking questions until you really know what makes this other business tick. And speaking of ticking, make sure your clearly understand the key economic driver that underpins the business you are considering buying.
4. Make contact.
If you’re working with an investment banker, that person might facilitate introductions. But more often than not, this is a face-to-face sit-down, CEO to CEO.
So how do you broach what could be a tricky topic? Jim recommends asking, “‘Is there an opportunity for us to work together? Is there opportunity for me to help you better understand what we do and you to help me understand what you do to see if there’s some synergies there?’ That’s a much easier way to begin that conversation than launching into, ‘Hey, I want to talk to you about acquiring your company,’ as you might imagine.”
5. Negotiate an LOI.
Your facetime with the other CEO is going to determine whether you want to get serious or move on to the next “date.”
If you want to take the next step, it’s time to huddle with your lawyers and write a letter of intent covered by a non-disclosure agreement. You don’t need to have all the details worked out at this point, but this is where the rubber really starts to meet the road.
“Average, one to three pages,” Jim says. “High-level expression of interest. This is what they think the company would be worth in a transaction. Maybe lays out some timeframes, talks a little bit about due diligence. So pretty high-level, but it’s the document that allows you to start to move into a deeper dive into the due diligence on the company.”
6. Finalize the agreement.
Jim says that once both CEOs agree on some high-level numbers and integrations, it’s vital that you start documenting everything you’ve discussed. Some details need to be memorialized in the LOI and then the purchase agreement. Emails might be sufficient to make sure both parties are on the same page about how some integrations are going to work.
But once this agreement gets signed, there’s usually no going back. You, the CEO have to be absolutely clear about what you want to get out of this acquisition, and make sure that your legal team includes all the necessary language to make it happen. For example, how are both companies’ C-suites going to be integrated? How are you going to deal with redundancies? What role, if any, do you expect to have in the new company? What role does the other CEO want?
In Jim’s experience, ironing out these “softer points” is especially important if you’re the seller. He says, “They go through what is oftentimes a very predictable sort of psychological process from being excited about entertaining discussions to potentially sell their company to then the realization that, “Oh, we’re now gonna be part of another company. What does that mean for me? What does that mean for all of my employees? Is this a place where I want to stay? The acquired company understanding early on what their longer-term objectives are is critically important in getting that transaction over the finish line.”
7. “Execute” the acquisition.
Once the ink dries and the champagne bottles are empty, the honeymoon is over. No matter how thorough your contracts and agreements are, the actual integration of two companies is always hard work. Two cultures have to mesh. Two sets of processes have to smooth into one. And some longtime employees won’t find a place for themselves in the new company.
Much of the success of this integration goes back to how well you executed previous steps: having a good Why, identifying a good partner, and assigning a dedicated team to seeing this project through.
Advises Jim, “If you’ve managed this process as a project where you have tasks and activities and you’ve got people who are responsible to do certain things by a certain date, then your agreement forms the basis for the integration that’s gonna happen post the transaction. It’s really the continuation from the acquisition-related activities right into the integration activities.”
- Have a good reason. Be clear on your goals and realistic about what this acquisition will accomplish.
- Allocate your resources. Dedicate a team to the acquisition so that the rest of your business can operate as usual.
- Pick the right partner. Do your homework, run your numbers, and don’t take a good first impression at face value.
About CEO Coaching International
CEO Coaching International works with CEOs and their leadership teams to achieve extraordinary results quarter after quarter, year after year. Known globally for its success in coaching growth-focused entrepreneurs to meaningful exits, CEO Coaching International has coached more than 1,000 CEOs and entrepreneurs in more than 60 countries and 45 industries. The coaches at CEO Coaching International are former CEOs, presidents, or executives who have made BIG happen. The firm’s coaches have led double-digit sales and profit growth in businesses ranging in size from startups to over $10 billion, and many are founders that have led their companies through successful eight, nine, and ten-figure exits. Companies working with CEO Coaching International for two years or more have experienced an average EBITDA CAGR of 67.8% during their time as a client, nearly four times the U.S. average and a revenue CAGR of 25.5%, more than twice the U.S. average.