Ten questions before you buy a company

Ten questions before you buy a company

By Mark Ostryn – Mergers & Acquisitions Specialist, LINK Corporate

You’re contemplating buying a company because you believe that you can improve the financial performance of not just that company, but your own as well.  That’s called synergies or more crudely 1 + 1 = 3.

Well, first of all have a think about how best your own company can grow.  Once you’ve got a plan and a framework for how best to achieve this you are in a better position to determine what kind of company you need to acquire (alternatively, you may find that internal / organic growth, or growth through collaboration / strategic alliances is less risky or more profitable).

Here’s a list of 10 questions that you should be able to provide very detailed answers to before you head down the acquisition path:

  1. What are your key strengths, weaknesses, opportunities and threats) list?  In particular, what do you need to have your opportunities come to fruition?  Also how do you mitigate against threats to your business?
  2. Imagine the future of your industry.  How will it evolve?  How will customer tastes change, how will suppliers adapt to suit those change, what shifts are likely to occur in related industries, what new direct competitors are likely to emerge, how will customer needs otherwise be solved and what impact (if any) is government policy, technology or the environment likely to have?
  3. To what extent do you and your team have the right experience, skills and attitudes to capitalise on the opportunity?  Can this be improved, and what external skill sets might you need to contemplate bringing in?
  4. How will you make money from the opportunity?  How can you best set up this opportunity in a risk averse way, then make money from it, and then continue to capitalise on it or build and maintain entry barriers?
  5. Looking at the transaction process.  How does the customer make decisions, is your service a compelling purchase, how much does it cost to reduce and deliver the service, how much support is required and how easy is it to retain the customer?  What additional revenues or annuity streams can be  obtained to improve cash flows?
  6. How would you strengthen your Value Chain and ensure optimal performance from manufacturers, distributors, imports and exporters, wholesalers and retailers?
  7. What are the strengths and weaknesses of your current competitors, what resources do they control and how could you potential co-opt potential or actual competitors by forming alliances or otherwise collaborating?
  8. What financial projections do you have?  What cash flow issues do you have particularly pertaining to investing in capital or personnel, or customer or supplier payment terms?
  9. What alternative scenarios could take place as you implement your plan?  How would you cope with a best or worse case scenario (e.g. the initiative is more / less successful than anticipated?
  10. What is your eventual exit strategy?