Adding On for Added Success
When done correctly, acquisitions can be a highly effective way to increase enterprise value. “A strategic add-on acquisition can result in greater scale, efficiencies and a diversified customer base, resulting in EBITDA multiple expansion,” says Brett Hickey, a YPO member and Founder and CEO of Star Mountain Capital.
Consider these five points from Hickey before, during and after the acquisition process when your venture is adding on for added success:
- Long-term vision: Create a long-term business plan by asking two key questions: who are your potential buyers and what will they consider important from a valuation perspective? This will help ensure you optimize your time and capital.
- Due diligence team: Have a detailed due diligence plan and team in place to analyze and execute acquisition opportunities. This important process requires experienced professionals and takes an inordinate amount of time. Allocate team member bandwidth and assign responsibilities after evaluating the opportunity cost of each team member’s time. Effective human resource planning is critical to your success.
- Post-acquisition integration: With your strategic advisor and operating team, create pre-closing, 90-day, six-month and 12-month integration plans. Deals often consume more time near closing so it is important to plan in advance.
- Strategic financial partners: Ideally, you will want a firm that is specialized and well-versed in acquisitions and operational integration. Consider your financing partner’s time horizons for liquidity, appetite to finance growth, willingness to work through challenges, value-added best practices and relationships.
- Remember the facts! As entrepreneurs and business owners, we tend to focus on the value that is “possible to create.” Remember that synergies are often difficult to achieve and must be well managed. Deal and integration expenses often are more than anticipated in terms of both time and capital. It is key to establish realistic goals and expectations.