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Industry Voice: How to choose the right company to buy to grow your current venture

By Bruce Hakutizwi November 15, 2019, 11:54 am MST

Acquiring a business can be tricky. To be successful, you also need to be fully prepared. We have put together some pointers so that you can go into the process with eyes wide open and make sure it is successful. Read on to find out what you need to look for in a potential business, how to remain impartial, and who to ask for advice. Finally, we'll look specifically at the manufacturing sector when it comes to acquisitions. 

Define your goals

Before going into any acquisition, you need to be clear about what it is that you are hoping to achieve. Get a clear understanding of what it is that you value about your business and where you want to go. 

You might be hoping to increase your market share, enter new markets, or increase your economy of scale. No matter what they are, however, you need to keep them at the center of your focus. Keep referring back to them and use the acquisition to get you from where you are now to where you want to be in the future. 

Finding the right business

If your acquisition is going to be successful, you have to find a business that is able to synergize with your own. It is not enough that the business covers the type of work that you need done, there needs to be a company culture that can fit with your own.

This is something that is more difficult to define. Try to understand management structures, the office environment, and other features that define the culture of a business. 

When the businesses combine, it is vital that the staff are able to carry on working as they have been with minimal interruption. You need to base your understanding of the strategic fit of the business on a proven history rather than future predictions.

You will also need to be very specific about what it is that you are looking for in the business that you are buying. Are you looking to expand your clients, bring services in house or increase your offering?

Do your due diligence

Any business that you acquire will have issues. You need to know what these are before you put an offer in. Conducting a thorough due diligence and having a clear picture of the company and its red flags will let you weigh up whether these are issues that you will be able to deal with or whether they will cause too many problems down the line.

You should have a detailed record of the financials going as far back as possible. You need to have a thorough picture of the customer base of your potential purchase. What is the concentration of customers and are there risks involved with them?

Use your due diligence to get a correct valuation of the business. The strategic value of the business that you are buying will factor into the value, but you want to try and buy at a reasonable price. 

Think about the people involved

Don't lose sight of the fact that there are people that work at these businesses that you are hoping to merge. You will need to think about how these different teams will be able to work together. 

Consider how you are going to motivate the people that work for you -- new and old -- through this process. Encouraging collaboration is vital. A large part of the reason for a merger is usually to acquire the skills and knowledge of the people that work there. Therefore, you need this knowledge to be shared in the new integrated business. 

Acquiring a manufacturing business

When it comes to the manufacturing industry, acquisitions are a great way to expand your own business. When looking for a manufacturing business to buy, you need to look for recurring income and an upward trajectory in sales.

Don't only focus on how diverse the customers of the business are (although this should be considered if you are acquiring the business for this reason). Buying a business will mean that you should also consider the strength of the customer relationships and whether these customers will remain after the acquisition.

In the manufacturing sector, you may be looking for the intellectual property of the business. During your due diligence, check patents, trademarks, and licenses. These should all pass to you on purchase and will form part of the value of the business.

Bruce Hakutizwi is USA and International Accounts Manager for BusinessesForSale.com, the world's largest online marketplace for buying and selling small and medium-size businesses.  Bruce has more than seven years' experience working within the U.S. business transfer marketplace connecting buyers and sellers.

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