Summary of the often overlooked "soft side" of SME acquisitions.

1. Seven Keys to a Successful Acquisition
By Michael Linder and Brian Flagler
Now is a great time for acquisitions!
Today, there are a great many strategic growth opportunities for those companies focusing
on what they can do, as opposed to what they can’t do.
Why? It isn’t just because business owners don’t know how to run their businesses, or
because the economy is in the tank, it’s also because:
- Business is hard and getting harder for many small to mid-cap companies. The
owners have a healthy business, but they don’t care to face the challenges of the next
five years.
- The owners see they have the right strategy to compete and can bring their vision to
fruition if they had an infusion of cash and/or a strategic ally.
- The owners see what their company could be, but realize they don’t have the skill-set
to see their vision become a reality. Thus, they’d like to sell and perhaps be retained.
The point is many owners who, five years ago, couldn’t quite bring themselves to sell or had
wildly exaggerated view points of their company’s valuation are becoming more open to
acquisition or selling a stake in their company…and their number one priority isn’t money,
per se.
Sure, there are many situations where coin-is-king and the Sellers want to simply cash out
and/or are in a distressed situation. But, understanding the following seven principles and
nuances will probably lower your acquisition costs…potentially saving you millions if you are
looking to acquire a company:
These seven tenets may seem like common sense, but since I have seen each frequently
violated I must assume these seven precepts are not so common.
1. For the Seller, their company is like a child the Seller has birthed. The Seller may
have spent years, even decades, creating, nurturing and sacrificing for this “child”.
The company is the Seller’s flesh and blood. Have you clearly demonstrated and
communicated how you will treat the Seller’s “child” during and after the
acquisition?...ah, in a manner that elicits a desire to sell…to YOU? And has the Seller
told you [the Buyer] that you have demonstrated this high level of empathy?
2. What will happen to the employees of the Seller’s company? The Seller may sell to a
lower bidder, or sacrifice income if the Seller feels their employees will be cared for
and respected.

2. 3. The Seller has probably spent months [or years] thinking through their vision for
their company and the pros/cons of selling…it’s important that you [the Buyer]
understand and exhibit respect for the emotional evolution that the Seller has gone
through to reach the point of wanting to sell. The Buyer’s understanding of the
vision/mission of the Seller may significantly reduce or increase the Seller’s asking
price.
4. Legacy – does the Buyer possess the vision, mission and resources to bring the
Seller’s vision to reality and leave the legacy the Seller envisioned for their company?
This is often more important than who is the highest bidder for the Seller’s
company.
5. EBIT/EBITDA multiple – I have been in several discussions recently with
companies that have expressed frustration with Sellers asking for “high”
EBIT/EBITDA multiples; suggesting the multiple was the key deciding factor
relative to acquisition valuations. EBIT/EBITDA multiples should be “a” factor
[not “the” key factor] when assessing the value of an acquisition, along with factors
such as the Buyer’s monetization strategy*, IRR, NPV and cash flow [i.e. cash flow
positive within 2 years]. When these other factors are considered, it may make sense
to pay an EBIT/EBITDA multiple that is much higher than industry norms.
* Two nuances regarding your monetization strategy… One, will your acquisition
result in incremental Sales or incremental Profit? The answer may be both. But, the
acquisition of a direct to consumer channel may result in incremental Profits and not
Sales [the sales you would have gotten via Retail simply moved to your direct
channel]. Nuance question two, what might be the unintended consequences of your
acquisition monetization strategy?...loss of an existing asset?...loss of an existing
channel?
6. The Seller is watching your acquisition team members. Many of you who are reading
this article may well have considered all of these principles, but does your team
supporting your acquisition efforts understand these principles as well or even better
than you? The Seller is often looking for “red flags”. I have seen multi-million dollar
deals derailed because of off-handed remarks made by minor role players on the
acquisition team.
7. Assimilation / integration of the acquired company – what is the 30/60/90 day plan
for integration once the Buyer has acquired a company? What is the 30/60/90 day
communication strategy? How will the Buyer solicit and manage input from all
stakeholders [acquired and existing staff, customers, investors, vendors, etc.]
regarding the integration process in a manner that builds cohesion and synergy? I
have watched companies mismanage the integration process, lose key customers and
personnel, and basically end up competing against the assets they thought they
acquired!
The company that understands these principles the best stands the best chance of acquiring
the company they desire…at a price well below market.

3. Now go beat the pants off the recession!
Michael Linder, a business development expert with 20 years experience, serves as a
consultant to publishers in evaluating strategic opportunities.
Email Michael at michael.linder@comcast.net