How do you organise the purchase of another company? Piotr Łagowski

The development of a company through acquisitions of other companies can be a source of spectacular growth in business. Experience shows that very often after the first years of dynamic growth, the vast majority of entrepreneurs encounter the so-called barriers. Organic growth and development through acquisitions of other companies are the only chances to maintain high growth dynamics. This truth has already been discovered by many Polish entrepreneurs, especially those who are active on the capital market.

At the same time, an unsuccessful acquisition may also be a source of spectacular failure which does not add value to your company and is the beginning of its significant financial problems. Unfortunately, these are not rare cases – there are many examples of unsuccessful acquisitions, and according to statistics, when making a decision to buy another company, you have a good chance of becoming part of this group.

What determines whether the acquisition of another company will be successful or not? Of course, our experience and intuition are crucial. For me, being lucky is also vital – business is not a preserve for the ones who are always unlucky. However, the two factors mentioned above also do not guarantee the success of the project unless the requirements of the third important factor are met – good preparation and implementation of an acquisition project.

Below, are the characteristics of a few issues that, based on my professional experience, I consider to be crucial for the successful acquisition of a company.

Acquisition as part of the implementation of our strategy

If we acquire a company to develop our existing business, the decision should depend on the specific goal we want to achieve. It may be just a willingness to increase the market share, acquire unique competences or take over specific assets (production plants, know-how or brands). In other words, first our strategy, then the decision about the acquisition and selection of the right target. Even suddenly appearing acquisition opportunities should be evaluated first in terms of our strategy.

Synergies, and the ability of our organisation to use them

Most acquisitions are carried out to achieve specific synergy effects. We hope that the purchase of another company will enable us to reduce certain costs, and that thanks to it, we will enter new markets and increase sales, or that as a result, we will become a company that stands at a different level of development. It all looks nice on paper in business plans and valuations, but it has no practical significance if our organisation is not able to consume these synergies.

Proper early planning of integration

The acquisition process of another company is not successful at the time of signing the purchase agreement. This is just the beginning of the difficult process of its integration with our business. This process should be reasonably planned in parallel to the acquisition works, so that the first day after the purchase of the company, we know what works should be carried out and we have the appropriate resources.

Proper investigation of the potential target

The audit process of the company being acquired is called the due diligence process. The scope of works within this process may vary considerably, but financial, legal and tax due diligence are normally performed. There are also other specialised tests specific to a given target (e.g. in the field of environmental protection or technology). These works are carried out by specialised consulting companies (auditing or legal ones). It should be remembered that the works carried out by these advisors are only a part of the whole process of researching the acquisition target. Before we proceed to due diligence, we must determine its scope very carefully and define our priorities.

Choosing the right transaction structure

Even the best planned and executed acquisition transaction can give lower than expected financial effects if the wrong transaction structure is chosen. Typically, tax issues prevail in the selection of the transaction structure, however, it should be remembered that an incorrectly selected structure may also be the cause of future costs and problems with the integration of the acquired company.

Signing the relevant transaction agreements

Although there are certain rules for the preparation of transaction agreements, they nevertheless serve as a guide, and each transaction requires an individual approach to the signed contracts. When working on the contracts, remember to take into account the risks identified throughout the process. This is the huge role of the project manager and coordinator, who should control all elements of the company’s purchase process. This task cannot be outsourced only to lawyers cooperating with us, because they have only partial knowledge of our project.

Possibility to withdraw from the project

At any moment, the entrepreneur taking over another company must be able to withdraw from the project if certain critical elements are exceeded and it is not possible to correct them. Sometimes it is difficult to say no, especially after carrying out the major part of the project, when the costs have already been incurred and success seems to be close. All the time, however, you need to remember about the goal that you want to achieve, and if during the process it turns out that this goal is unachievable, you should consider resigning from such a project.

How do you organise the purchase of another company – summary

The success of the acquisition of another company depends largely on ourselves – on our intuition and our experience. This success depends, however, on the professional implementation of such a project. It is good to use the support of an appropriate M&A advisor – ideally one with whom we work over the long term and who perfectly knows our organisation, understands our strategy and whom we can fully trust. Find out more about the choice of an advisor in transaction processes in our article “Transactional or strategic advisor“.