Business Acquisition Strategy from a Banker’s Perspective
Years ago as a business owner you might have been content to just stay the course because you were doing well and could almost forecast continuing to do so. In today’s evolving environment status quo is not good enough. We have observed with our members that in order to stay relevant is to grow through acquisition.
Recently, Hugh Robinson, the Senior Vice President/Business Banking Team Leader at First National Bank of Baltimore, led a discussion with one of our peer groups about best practices he has experienced in his 36 years, which result in making a deal happen successfully.
Hugh provided business acquisition strategy steps to keep in mind in the early stages of pursuing an acquisition. The number one piece of advice: Think with your head not your heart! Don’t fall in love with the target. An acquisition had to be good for everyone and your vision initially changes as more information is gleaned from financing options, due diligence and the overall courting phase. When red flags appear, pay attention, do not discount them.
Hugh makes the point that every deal is different and unique. However, in the early stages when vetting, an essential step to take is to embrace assistance from your mentors, peers, and advisors – your banker, accountant, attorney – remembering to include them in the process sooner than later.
Including a team you trust upfront will allow them to tell you candidly why NOT to do this deal. You have all the reasons WHY to do this deal but, in the beginning, you need to hear why NOT to do this deal. It can save you time, energy and disappointment. Additionally it can expedite what your gut is already telling you.
Hugh discussed the key points to consider in the initial phase of an acquisition from the banking perspective which we share here:
- Make a list of all the things that will be met by this acquisition/what is the gap that the acquisition fills that exists today in your company/ what is your goal with the acquisition/ what is in it for the seller, the buyer, the customers
- Bring in a consultant to broker the deal. Particularly with expertise in your industry
- Cash is king
- Cash flowing the deal is important
- Financing will depend on many factors- every deal is different. The healthier the financials, the synergies, the cash flow, the better.
- Have a relationship with a bank before thinking of acquisitions. It’s much better that the bank know you and your business before being put in a position to consider financing an acquisition. So develop those relationships now.
- Need forward looking Balance Sheet, P&L and Cash Flow statements
- Assume “x” % of customers will leave
- Analyze a bad case scenario and then ask yourself “is it still a good deal?”
- Make sure to solidify key people and customers
As the CEO of a company, your time is valuable. If an opportunity for a potential acquisition arises, the key is to vet it effectively and efficiently as quickly as possible. Don’t be taken by the emotion of doing a deal that is fun – bad deals are not fun. The tips Hugh outlined above will lend a hand as you navigate that path and, most importantly, allow you to keep your head about it.