By Chris J. Snook. Snook has worked over 12 years as an author, entrepreneur, and venture catalyst and has spent the last 5 years in the investment community incubating media startups as the Managing Partner of TLEC Ventures. He co-authored three international best-selling books entitled WealthMatters 2007and 2011 (2nd Edition) and Burnout: How to Transform Frustration to Fortune in 2005.
In today’s business world, acquisitions occur on a regular basis. At times, it’s a miserable situation for the company acquired. However, in many cases, the smaller company might seek a buyout to broaden their company or turn a profit on a desirable innovation. Whatever the scenario, it’s important that the process revolves around clear communication, realistic expectations, and positive resolution. With these considerations, the stress of the unknown can be relieved.
Unfortunately, many problems involving buyouts stem from unclear communication between the sellers and buyers. From the sellers’ perspective, it is important to clarify why – or if – they need to be acquired. What is the motivation? The potential buyer, at some point, will uncover the true need or desire, so it’s in the sellers’ best interest to state their goals from the outset. Hidden or buried agendas create tension and do not contribute to a successful transaction. The acquired company must also be clear in defining what it needs from an acquirer in terms of strategy, culture, and finance before a deal can be brokered.
Likewise, a potential buyer needs to clarify their vision for the acquired company. Client cross-marketing potential, service synchronicity, and shared business goals should be discussed as part of the acquisition. How much of the present staff will be retained by the acquirer? What will be the compensation (if any) for the staff that’s not retained? Of course, this will occur on a case-by-case basis. In many acquisitions, the staff is considered a commodity that can be replaced by the parent company. However, exceptions do exist. If the acquired company is part of a service industry, then the business relies on established relationships and intangible assets. These qualities need to be considered if success and loyalty are priorities for the acquirer.
Acquisitions inherently create a lot of change. Absorbing them in the early stages can take time. Strategic initiatives and priorities for the transition should be mapped out. Uncertainty is the enemy. The chain of command needs to be informed about strategies to keep key players and clients. Again, this is dependent on the goals communicated by both the acquirer and the acquired. The handling of a company’s employees is crucial. Expectations concerning stock options, incentivized earnouts, and bonus compensation should be consistent and fair. The newly acquired company will be far more productive and experience less disruption and uncertainty if everyone knows where they stand.
The reality of acquisitions is that investors and acquirers are investing money in order to make money. They’re in a position to make long-lasting choices for their benefit. If they can envision their financial goal being achieved with the existing team, then that’s a mutually beneficial situation for the acquired company’s employees. However, it is not necessarily a given. For an acquirer, it is beneficial to state how these tough decisions will be made. With honesty and clear expectations, a successful relationship between the organizations can begin.
The most important thing for both sides to consider before approaching an acquisition is to understand each other and work to build a relationship. Based on personal interactions and research, each company should become infinitely more familiar with the other one. An acquirer should learn as much as possible about the lead entrepreneur and his management team. By taking into consideration what the company values personally and professionally, a smoother transition can take place.
Hostile takeovers don’t work on a practical level in the emerging enterprise space. Without the lead entrepreneur, the acquiring company takes on several jobs that overextend and complicate their own management team. Assessing the market potential and opportunity for the company’s offering or technology is only half the equation. More importantly, the relationship potential is paramount. An acquiring organization should seek to maximize the raw power and talent of its investment without squeezing the life out of it. It is a delicate balance to attain and sustain.
The process of acquisition does not have to be painful. With clear communication and expectations from the outset, the acquirer and acquired can avoid surprises and inconsistencies in future endeavors. A solid and positive relationship can be built during the transition that is vital for continued success. With the changes that occur during an acquisition, each organization can reflect upon, and solidify, the visions they hold.