6 Common Misconceptions of Acquisitions - Acquire.com

First misconception with acquisitions, that the process is quick and easy. That is by far not the truth. These processes take time. Many people think they can be done overnight. In reality, a formal process might take six to nine months, maybe even more. You don't know how long your company is going to be on the market for, so you prepare for that before going in. These processes take time. So one, you have to package your company. You have to prepare it, you have to make it look nice, you have to find the value drivers, you have to put it in a way that the buyer will get interested, that they'll want to look at your company deeper and they'll want to acquire it after that. Well, you have to get the market material. Are you sending it out or are you putting on a website? You're filling this out based on the information you gathered. Once again, you're making that company look fantastic. You're enticing everyone on the other side. Now you have to start marketing and have conversations with potential buyers. Remember, this is all take time. How many back and forth emails are there going to be? How many questions are they going to have? How many buyers are going to be interested in your company? Say you have 50, 100 buyers that are reaching out to you. Those are all conversations that have to take place. Some of them are short, some of them are long. All right, now you're whittling that down that fun funnel. You're going from this big group of potential buyers to that one that you really want. Once again, that takes time. And now negotiating with those final few to get to that one, that takes time. These are all processes that have taken time. And a lot of people think, well, I'll just put it up for sale and sell it the next day. No, we're not even in due diligence. If you were to buy something, do you really want to look at just the outside of the car or do you want to look under the hood? Do you want to bring in a mechanic to inspect it? You probably do. And that's what happens when you sell a company. There's a lot of stuff that happens in that due diligence process to make sure that, well, the buyer's getting what they want and that you're de risking your sale. So with that, we're not even at the close yet. So remember, think of everything that we've done. We've looked at the company, packaged it, went out to market, talked to potential buyers, then negotiated those down to a single buyer. Now we're in due diligence. That can't be done over a weekend. Well, some might, Some may say they can, and it does happen. But in reality, these processes take time. Second misconception, with acquisitions, once you find a buyer, the deal's done. Whoa. That can't be farther from the truth. When you have a buyer, well, guess what? You're kind of just on the 10 yard line of a football field of 100 yards, right? You might think that you're almost at the touchdown area, but in reality, you can barely get a field. Well, actually, you couldn't even get a field goal if you tried. When you find that buyer, there's so many more steps to go through, through closing. So after you found a buyer, a potential buyer, there's a lot of steps that have to happen. And with these steps, honestly, the buyer at any time could say, you know what? This isn't for me. I've seen a couple red flags. There's a couple things here that are pretty risky. I'm backing out. Or maybe on their side, stuff's happening in the background you don't know about. Maybe the funds that they thought they could use for acquire your company, maybe they have to be deployed someplace else. Maybe they don't no longer have access to those funds. Maybe interest rates have changed. Who knows what's going on in the background that you're not aware of. But just thinking that someone said, hey, I'm interested in your company and this deal's going to close. Whoa, whoa, whoa. Sit down, Relax. You have a long process to go. Any part of the due diligence, whether it's it due diligence, whether it's market due diligence, whether it's hr, legal, accountant, any of those times they're doing due diligence, something could, could come up where they could say, hey, wait a second, this is not in my risk appetite. This is a little bit beyond what we're comfortable with. We're going to have to walk away. Maybe you can counter, maybe not. But remember, when you think that just because someone says they're interested in buying your company, the deal's done, no, you're right at the beginning of that process, that, that dating, courtship. Think of that as more your first date. And you have a long way to go before marriage. Acquisition misconception number three, that the acquisition is hostile, what do we remember that? Well, a lot of people think buying and selling companies, they watch these movies on Hollywood, Wall street, and they have one team over here, one team on the other at a table, yelling at each other, cursing each Other, in reality, acquisitions can be pretty friendly. Acquisitions do not need to be this hostile thing where you have one group battling against the other group. In fact, in reality, people want to work together. They've come together to discuss these transactions because they want something to come about it. They want to, in most situations, say, hey, your company's doing something we want, or hey, we want to sell our company to you. Because of these reasons, whether it's they want that exit to retire, they want to see someone else grow the company to means they couldn't do themselves, or whether they want to take some chips off the table to do other things with in their life, or it's just time. There's many reasons why one side wants to sell and that side that wants to buy. Maybe they like the technology, maybe they want the revenue, maybe they want the customer list. Maybe they. There could be many reasons, but in really, in most situations, they come together at a table and go, hey, we're interested in acquiring you for the due diligence goes a lot deeper. And depending on your company, there's a lot of spectrums of what could be looked at. Some due diligence. When things come up, when there's these red flags, they talk it out. They sit there and go, hey, why was this? Could you explain it? Oh, it's for these reasons. Oh, thank you for explaining. I understand. Now, in reality, a lot of these conversations, yeah, there are some peaks and valleys, just like in all conversations in life. I mean, who here has had the perfect relationship with their significant other? You have some great times, some bad times, but in reality, there. There's this level of just that communication, that openness of maybe you go home and have to go on a walk, but then you come back the next day and go, hey, guys, let's move this forward. I thought about it. Let's just. There's these points that we need to go on, but in reality, a lot of these conversations are just that. They're conversations where people have a common goal and they work towards it. So don't believe everything you see on Hollywood or don't believe everything you see on the screen. In reality, it's people coming together to work towards something. Misconception of acquisitions for, you know, what the buyer wants. Do you really know? Can you read their mind? Have they told you the exact reasons from day one, you never know what you might be emphasizing on this value of the company or that the revenue, the ebitda. It might not be something that the buyer is really interested in. And asking from day One, hey, what do you see about our company that really entices you, that you really, like, could steer the conversation in a direction that's better for everyone. So the misconception is, at the beginning, you know what the other side's looking for? The acquisition of knowing what the buyer wants. If you're the seller. If you're the seller, maybe you think, God, our company has some amazing technology. Or you might be thinking, our company has some amazing growth. The reality is, yes, those are great things, but do you really know what the buyer's looking for? Is the buyer looking for entering a new territory that you might already have access to? Are they looking for contracts to key vendors or key purchasers that you have those contracts for that they think, oh, great, we'd love to buy your company so we can then sell our other products or get these parts at a better price or better benefits or who knows? Or maybe it's your staff, your employees, and they're really looking for engineers. Maybe it's. I mean, the list goes on and on of why this one company might want your company and to just assume, you know, on day one, well, it puts you actually in a bad situation. Because if you're open to think, wait a second, there could be more to this, well, then you could actually leverage that on your benefit, thinking, wait a second, if they have what we're doing here and put it in their package that they're selling to their existing customers, their revenue could go up this much. And if you're not really thinking about why they want it, you could be putting yourself at a disadvantage during the negotiation. So from day one, really ask questions, find out why, and don't assume you know of why the other group wants to acquire you. Acquisition misconception number five. Due diligence is only financials. How many times have people, people said, oh, my gosh, I just need my numbers. I need my profit and loss, my balance sheet, my cash flow. I just need these numbers to show for due diligence, and then I'm going to sell my company and then that's it. But in reality, there's so much more to due diligence than just your financials. Due diligence is not just financials. A lot of people think, okay, I get my financials done, I send them to them, they look them over, that's it, done, we're done in a week or whatever. No, that's not the case. Due diligence goes a lot deeper. And depending on your company, there's a lot of spectrums of what could be looked at. Some companies might need environmental due diligence where others may not. Some companies might need it due diligence where others may not. And any of these groups of due diligence, well, think of how deep you can go for it. Cyber cybersecurity. Is your systems on prem in the cloud. Do you have the proper updated antivirus software? Does the company have the right number of licenses? The list can go on and on for just one thing. But then you have other areas of due diligence. HR due diligence. You have market due diligence. Maybe they want Q of E, a quality of earnings done depending on the size of the deal and the transactions. Due diligence can be pretty complex. That's why you'll hear these companies that are in due diligence for not just, you know, 30 days, but maybe 60, 90, 120 days where they're just not sitting on the sidelines. These are active processes where groups are spending an enormous amount of money with third parties. Experts really dive in into making sure that this transaction is what they want and that there's not that lie. Companies might need environmental due diligence where others may not. Some companies might need it due diligence where others may not. And any of these groups of due diligence, well, think of how deep you can go for it. Cyber cybersecurity Is your systems on prem in the cloud? Do you have the proper updated antivirus software? Does the company have the right number of licenses? The list can go on and on for just one thing. But then you have other areas of due diligence. HR due diligence. You have market due diligence. Maybe they want Q of E, a quality of earnings done depending on the size of the deal and the transactions. Due diligence can be pretty complex. That's why you'll hear these companies that are in due diligence for not just, you know, 30 days, but maybe 60, 90, 120 days where they're just not sitting on the sidelines. These are active processes where groups are spending an enormous amount of money with third parties. Experts really dive in into making sure that this transaction is what they want and that there's not that liability afterwards or anything that they'll discover later on. So due diligence itself. Some people might think it's just those financials, but in reality there's so much more to it depending on the transaction. Acquisition misconceptions. Here's a bonus for everyone. Well, a lot of people think once the deal signed, it's done. Reality, no, after the deal sign, there's a lot more that will happen. When a deal's inked and money's transferred or that closing date, a lot of people think, all right, this is it, it's done. I can go off into the sunset, I can just sit on a beach. I don't need to worry about anything in the future. Reality, a lot can still happen. One, depending on that contract, maybe there's this earnout component or something where you're still in the business day to day working. Maybe you're going to be there for the next, I don't know, one year, two years, three years, who knows? But you're still involved. Also reps and warranty. Did anything that you've said in the past, will it come to light later? You don't know that. It could be six months later, you hear something maybe even a year later. There's that tail period of hey, what was said before and what's going on after that could still arise. There's also the well dependent. Maybe there's this transition period where the company's going from, well, what it was before into the new and you're heavily involved in all of that. There's so much happens that after the Inks just signed that, well, when you go into a transaction plan for it, just think of it this way. You might already have that one touchdown in the game, but you're still, it's only the halftime. You still have two more quarters to play.