Buying a company is a demanding, complex process requiring a wide range of skills and abilities. If you understand this process thoroughly, then you are far more likely to make the right purchase decision. Whether you are buying the corner ice cream parlor or a $100-million business, following certain steps will enhance your chances of successfully operating a profitable venture once the deal is closed.
Psarouthakis founded and built J.P. Industries into a Fortune 500 company by acquiring underperforming auto parts and plumbing products manufacturers, selling the company to a British conglomerate, T&N Plc. Next, he founded JPE Inc., which manufactured and distributed auto and truck parts for OEM and the aftermarket. Although Psarouthakis’s experience draws heavily on the manufacture and distribution of durable goods sectors, many aspects of the process are the same, regardless of the industry. Interviews conducted by coauthor Lorraine (Hendrickson) Uhlaner with entrepreneurs involved in acquisitions for the retailing, service, and construction sectors and other published information about the acquisitions process also influence the content of this book.
The Buying Infrastructure
It is estimated by various sources that tens of thousands of businesses change ownership every year. For an updated estimate of this high-volume activity, contact the International Business Brokers Association. To support the very high number of transactions, a rather broad and complex infrastructure exists for finding and promoting deals. Few businesses up for sale are advertised in published sources. Relying upon this infrastructure is likely to provide you with a larger number of high-quality leads to choose from and with less effort than trying to find them on your own. To be taken seriously within the business-investment community, you typically must demonstrate an understanding of the deal-making process, even if you hire consultants to assist you in the search. Continue reading HOW TO ACQUIRE THE RIGHT BUSINESS-An Introduction
Dr. Tamir Agmon is an invited contributor to The Business Thinker. He is a Professor of Financial Economics at the School of Business, Economics and Law at Gothenburg University in Sweden.
The relations between research in business and management and the practice of management are not simple. Good research is conceptual and often is based on simplifying unrealistic assumptions. Good practice of management is concrete and is closely related to a specific situation in which the manager and the organization operate. Yet, good research contributes substantially to the practice of management just because it is not an attempt to describe business reality. Good research provides a conceptual model of reality that allows practitioners to gain a better understanding of some critical processes underlying the practice of management in a specific field.
The issue of selling innovative ideas in the market is a good example of the complex relations between research and practice in management and how managers in all levels can gain better understanding from research.
It is almost a cliche to say that the managers of today operate in a knowledge economy and that business is driven by new and innovative ideas. The communication industry, the information technology industry, the microelectronics industry and the medical industry are the most well-known industries that are driven by new and innovative ideas, but a closer look will show that even traditional industries like food, glass, and the automotive industry are affected to a great extent by new ideas pertaining to the production processes, the development of new features in existing products and to other dimensions of the business. Continue reading SELLING IDEAS IN THE MARKET: REVOLUTIONARY AND EVOLUTIONARY INNOVATION IN CORPORATIONS
Financing the acquisition
Financing the acquisition requires thorough and careful planning. You need to consider the different sources of funding accessible to you. The amount required for purchasing the company may dictate the types of sources that you seek out. Some combination of debt and equity is likely. Be wary of overextending yourself with too much debt. On the other hand, be careful to protect your immediate family by not taking too great a risk with your personal assets. It should not be necessary to put your entire life’s savings up for collateral. If the deal makes sound business sense, if a bank or other lending institution starts making unreasonable demands, check out another bank, review your business plan, or try some other approach. Lending institutions vary from the unscrupulous to the impeccably correct. You need to be especially cautious with any lender that is likely to take your company away from you if you fall behind on a few payments. Check out your sources, both equity and debt, as thoroughly as you check out the seller. Are you dealing with honest individuals? Have you reviewed the fine print for hidden commitments that might jeopardize your ownership? The earlier you begin to develop your financing plan, the more likely you will be ready to close, when the purchase agreement is finally negotiated and signed.
Your action plan
You can easily get so caught up in the acquisition process itself that you delay proper planning of the takeover until after closing takes place. This would be a big mistake. Successfully executed acquisitions require months of planning prior to closing, to assure a smooth transition. Much of the preliminary work overlaps with a properly done formal due diligence–extensive evaluation of the company and identification of potential problems. The remaining work, some of which may be obvious and some of which might require more problem-solving creativity, involves identifying the necessary changes and improvements that should take place and an assignment of due dates, budgets and people responsible for carrying out these changes. A simple format is to create a short one-page action plan for each topic, identifying the issue, the action required, who is responsible, and when it will occur, along with a budget and expected results.
The acquisition action plan may be the single most important thing you can do to assure the success of your new company. It is viewed as an extremely critical component of the successful acquisitions. The chief (principal) operating person must be involved in the process from the start.