Seven Keys to a Success ful Acquis i t ion By Michael Linder and Brian Flagler Now is a great time for acquisitions! Today, there are a great many strategic growth opportunities for those companies focusing on what they can do, as opposed to what they can’t do. Why? It isn’t just because business owners don’t know how to run their businesses, or because the economy is in the tank, it’s also because:

- Business is hard and getting harder for many small to mid-cap companies. The owners have a healthy business, but they don’t care to face the challenges of the next five years.

- The owners see they have the right strategy to compete and can bring their vision to fruition if they had an infusion of cash and/or a strategic ally.

- The owners see what their company could be, but realize they don’t have the skill-set to see their vision become a reality. Thus, they’d like to sell and perhaps be retained.

The point is many owners who, five years ago, couldn’t quite bring themselves to sell or had wildly exaggerated view points of their company’s valuation are becoming more open to acquisition or selling a stake in their company…and their number one priority isn’t money, per se. Sure, there are many situations where coin-is-king and the Sellers want to simply cash out and/or are in a distressed situation. But, understanding the following seven principles and nuances will probably lower your acquisition costs…potentially saving you millions if you are looking to acquire a company: These seven tenets may seem like common sense, but since I have seen each frequently violated I must assume these seven precepts are not so common.

1. For the Seller, their company is like a child the Seller has birthed. The Seller may have spent years, even decades, creating, nurturing and sacrificing for this “child”. The company is the Seller’s flesh and blood. Have you clearly demonstrated and communicated how you will treat the Seller’s “child” during and after the acquisition?...ah, in a manner that elicits a desire to sell…to YOU? And has the Seller told you [the Buyer] that you have demonstrated this high level of empathy?

2. What will happen to the employees of the Seller’s company? The Seller may sell to a

lower bidder, or sacrifice income if the Seller feels their employees will be cared for and respected.

3. The Seller has probably spent months [or years] thinking through their vision for their company and the pros/cons of selling…it’s important that you [the Buyer] understand and exhibit respect for the emotional evolution that the Seller has gone through to reach the point of wanting to sell. The Buyer’s understanding of the vision/mission of the Seller may significantly reduce or increase the Seller’s asking price.

4. Legacy – does the Buyer possess the vision, mission and resources to bring the

Seller’s vision to reality and leave the legacy the Seller envisioned for their company? This is often more important than who is the highest bidder for the Seller’s company.

5. EBIT/EBITDA multiple – I have been in several discussions recently with

companies that have expressed frustration with Sellers asking for “high” EBIT/EBITDA multiples; suggesting the multiple was the key deciding factor relative to acquisition valuations. EBIT/EBITDA multiples should be “a” factor [not “the” key factor] when assessing the value of an acquisition, along with factors such as the Buyer’s monetization strategy*, IRR, NPV and cash flow [i.e. cash flow positive within 2 years]. When these other factors are considered, it may make sense to pay an EBIT/EBITDA multiple that is much higher than industry norms.

* Two nuances regarding your monetization strategy… One, will your acquisition result in incremental Sales or incremental Profit? The answer may be both. But, the acquisition of a direct to consumer channel may result in incremental Profits and not Sales [the sales you would have gotten via Retail simply moved to your direct channel]. Nuance question two, what might be the unintended consequences of your acquisition monetization strategy?...loss of an existing asset?...loss of an existing channel?

6. The Seller is watching your acquisition team members. Many of you who are reading

this article may well have considered all of these principles, but does your team supporting your acquisition efforts understand these principles as well or even better than you? The Seller is often looking for “red flags”. I have seen multi-million dollar deals derailed because of off-handed remarks made by minor role players on the acquisition team.

7. Assimilation / integration of the acquired company – what is the 30/60/90 day plan

for integration once the Buyer has acquired a company? What is the 30/60/90 day communication strategy? How will the Buyer solicit and manage input from all stakeholders [acquired and existing staff, customers, investors, vendors, etc.] regarding the integration process in a manner that builds cohesion and synergy? I have watched companies mismanage the integration process, lose key customers and personnel, and basically end up competing against the assets they thought they acquired!

The company that understands these principles the best stands the best chance of acquiring the company they desire…at a price well below market.

Now go beat the pants off the recession! Michael Linder, a business development expert with 20 years experience, serves as a consultant to publishers in evaluating strategic opportunities. Email Michael at michael.linder@comcast.net