Acquiring another business can have advantages and disadvantages. Some aspects are obvious, such as the financial considerations, the state of the business you're looking to acquire and it's growth potential. That's where due diligence, or research, comes in. But there are other areas to consider that maybe don't fit into a spreadsheet, namely the different cultures in both firms and the implications for the employees of both companies. The business world is littered with eye-catching corporate mergers that simply didn't work out, so targeting the right business to acquire is important.
If another business sells or provides complementary products or services and is not performing to its full potential, it could be a good acquisition target. Not only will it reduce your competition, it should have the effect of expanding your reach, your customer numbers and therefore your market share. A good target is one that can help reduce your overheads through economies of scale, that might enable you to cross sell and that will expand your firm's geographic spread.
Due diligence is vital when attempting to acquire another business. It should entail looking into all aspects of the business, such as the finances, legal, human resources, whether it complies with relevant legislation and any contractual obligations it has with customers or suppliers. But it should also include intellectual property questions, property issues, and all insurance and liability coverage. What you don't want to find once you have bought the business is a cupboard full of skeletons (unless you're buying a skeleton-related business). These can range from ongoing employee-related problems to bad debts.
Other things to consider include whether the two management teams can work together. Some senior people will stay, some might want to move on, and so working out the new management structure is important if the two firms are going to merger as seamlessly as possible. Bear in mind that the acquisition will rumble on, including all the due diligence required, for a number of months - so don't forget to keep an eye on the continued running of your business while handling the acquisition. There may well be different pay and conditions in the two businesses and this will need addressing.
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