While the world is adjusting to the new normal, some businesses are struggling to adapt whereas others are thriving. Due to COVID -19 related challenges, many owners are selling their businesses. We see an incredible opportunity for firms that have acquisitions on their radar.
For those of you who want to grow through M&A, here are four mistakes to avoid:
- Lack of a concise strategy– Failing to have a concise strategy is the number one reason acquisitions fail. Either firms have no strategy at all or they try to use one deal to fulfill multiple strategic needs. Both can hurt your chances of a successful acquisition. Without a firm grasp on why you are acquiring another business, it is easy to get pulled into doing a bad deal just for the sake of getting one done. On the other hand, if you are trying to fulfill multiple needs with one acquisition, you risk fulfilling none of them. Having a single, clear purpose for acquisition keeps you focused and generates results.
- Planning as you go– If you start a journey without a map, you are probably going to end up lost in the woods. It is always best to develop a carefully planned strategy before jumping into pursuing deals. Most companies have a manual or instructions for hiring employees, but no acquisition roadmap even though it is much easier to hire and fire someone than it is to buy and sell a company. In particular, if you have never done an acquisition, following a plan will keep you on track and help you avoid pitfalls.
- Evaluating one deal at a time– Only evaluating one deal at a time is like putting all of your eggs in one basket. If the deal falls apart, you have to begin the process from square one and you will have spent a great deal of time and money with nothing to show for your efforts. A better approach is to evaluate multiple prospects at the same time. Having multiple deals in the pipeline gives you more options and increases your likelihood of success.
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- Moving too slowly…or moving too quickly– If you move too slowly, you will lose deal momentum. If you move too quickly, you may miss critical details. It is important to maintain the right balance. We recommend going “slower” during the foundational part of the acquisition process when you are developing your acquisition strategy, criteria, and team. Establishing a firm foundation will help you move swiftly in the later stages of the deal once you begin contacting and meeting with owners. Once an owner says “yes,” your ability to respond quickly is essential to maintaining momentum and excitement. If you hesitate during this stage, the owner could become discouraged or lose interest in the deal.
Learn from the mistakes of others and make sure you avoid these common pitfalls in order to maximize your chances for success.