The Challenge of Merging Multiple Businesses

Most people don’t realize it, but one of the fastest ways to achieve revenue growth is through acquisition. 

 

The traditional method of sales and marketing might sound like a safer, surer bet, but in many cases, a merger or acquisition can actually prove to be a far more efficient route to both revenue growth and a higher company valuation.

 

There are a number of reasons why this is the case. For one, by acquiring a new company, you’ll have the ability to leverage the economies of scale, those cost reductions that occur when a company increases production or lowers costs. For instance, by acquiring a similar business or one with the same target audience, you can leverage the customer list from each business and cross-sell your products as well. You’ll also be able to combine your resources, cutting costs in key areas. 

 

There are other reasons that you may want to consider buying a new company, or purchasing companies with the intention of rolling them up. Acquiring a new business gives you instant access to that company’s independent resources, which may look quite different from your own. You can also form strategic alliances to gain access to new markets, or to venture into a new niche that you’ve been wondering how to break into.

 

If a merger or acquisition is on the cards for you, then you’ll want to ensure that you’re prepared for everything that’s in store. Knowing what you’re looking for from the start can help you to find success, and avoid a number of common pitfalls, allowing you to ensure that you find and structure a deal that’ll work for you.

 

Tips for a Successful M&A

 

Having recently gone through the process of merging multiple businesses myself, I wanted to share some strategies for success, along with some common pitfalls you’ll want to avoid.  

 

Let’s take a look now.

 

Organize Your Finances

If you’re using your own funds to acquire a business that’s one thing. But if you’re looking for funding, you’ll need a balance sheet and revenues that a bank or funder can trust. They’ll determine your loan-to-risk (LTR) and hopefully give you the investment backing you need. There are a few ways to gather funds, but the key is to have these secured and agreed to prior to making major moves in the market. Quick action is sometimes the soul of M&A and certainly gives you more leverage. For this, you need funders who you trust and who trust you in return.

 

Get Specific 

Get very specific on the type of business you are looking for. Outline exactly what you want in terms of revenue levels, business model, target audience, and more. This will help you narrow down the process and not waste time looking at every business in your niche. Also, depending on your big-picture goals, you may want to think outside the box and be creative with your acquisition strategy. For instance, maybe there is a software product that would help your physical product to sell better, or there might be a physical product that can be a lead magnet for your existing company. Don’t feel like you have to focus on companies that are exactly like yours. Sometimes looking for complementary businesses can be a good strategy.

 

Research the Business

If you have a knack for market research, you’ll love M&A. Either way, you’ll want research experts at your disposal. This is especially true in markets and industries where the public reporting or listing of companies isn’t common, such as SMEs and private companies. You will want to know everything about a business and its market before committing to acquiring it.

 

There are two general strategies that you can use here. Wait for something to come on the market or on one of the brokerage sites. Or, you can take a proactive approach and reach out to brokers, telling them what you’re looking for. This is a strategy that we used that ended up getting us access to a couple of businesses before they hit the market. For us, it ended up being the best approach.

 

Look for Areas Where You Can Cut Costs

When searching for a business, look for a company where you can reduce overhead through services you already have contracted. So for example, maybe you already have a social media manager who can easily handle another business as well. This would allow you to reduce the overhead operating costs of the new business. Like I touched on earlier, one of the key aspects of mergers is that you can achieve a higher profit simply by leveraging the existing assets you already have. If you’re selling physical products, as opposed to services, look at purchase order volume. See if you can get a lower price by buying for both companies at the same time.

 

 

Review the People 

It’s also a good idea to have a detailed review of the people involved in any business that you’re acquiring and a good understanding of key person roles. How much of an impact would it have on a business if person x or y were to leave? Ideally the company will be set up for systems and have SOPs in place that will make an individual person less impactful, but it’s important not to underestimate the power of a good team. There’s often someone behind the scenes who’s really holding things together. This could be a great bookkeeper, keeping things going in accounting, or maybe a lead salesperson. You never know. But you’ll need the staff for the transition period. In most cases, it’s best not to start cutting jobs any sooner than you have to.

 

Remember: The Sales Process Is a Delicate Dance

Approaching your M&A targets requires diplomacy. The sales process is often a delicate dance. In some cases, the business you are acquiring is someone else’s baby. So keep that in mind when doing your research. I always try to find out what, exactly, is motivating the seller. Do they need the cash for something else? Are they interested in leaving some of the money on the table for future gain? Do they just want to get out? This will help you to formulate how to best structure the deal. In some cases, it’s not out of the picture to put out zero cash if the deal is right.

 

The Big Step: Operational Integration

 

Next up: pulling it all together.

 

When merging businesses, there are a number of challenges that often arise when bringing together diverse business structures, systems, and people. Here’s a look at a few different tips that’ll help you to make the merger a seamless and ultimately successful process.

(Source: Shutterstock)

 

Consider an Integration Team

You won’t need an integration team if you’re just merging smaller businesses or brands, but if you have a company with multiple team members, having a team to oversee the integration process will become especially important. An integration team is more or less a formal group, employing both trained and specialized staff and contractors, as well as those outside the business with little or no knowledge of how it operates. The aim of the integration team—or teams, in a larger investment—is to review and implement the transition program based on your final, agreed-upon business plans. A lot depends on the proper functioning of this team, so you should look to source those already in the business who can direct and manage change.

 

Update or Consolidate Branding

You’ll also want to review the brand and identity of the new company. Should the names, designs, and communication be refocused, refined, or made stronger through a group identity? The answer may be clear, or it may take some serious consideration, but this is a major opportunity to put a new stamp on your acquisition and build brand value in the process. Clear messaging is essential at all levels and across all functions of the business.

 

Establish Digital Security Protocols 

A massive issue for every M&A today is digital security. That includes the immediate transfer of all security systems to your own control as soon as you acquire the business. It also requires the application of new security protocols for individuals, teams, and entire organizations that are put into you or your teams’ hands in a carefully controlled, secure transition. Other elements of this transition include updating logins and passwords for each individual, group, or company.

 

Do an Inventory Audit

If you’re acquiring a sizable company with a high level of overhead, you’ll also want to conduct a review of the state of all vendor relationships and contracts, and if applicable, your audited stock, transit, and warehoused goods and inventories. 

 

Establish Key Performance Indicators (KPIs) 

Reassessing KPIs across your new businesses is extremely important following a new acquisition. Remember to ensure that the KPIs you establish are goal-oriented and will actually move the needle in some way. Don’t waste time on vanity metrics. Start by outlining the key objectives (like higher earnings), then work out from there, breaking them down into outcome measures (like cost reductions or revenue growth rate), and finally, activity measures (labor costs, marketing costs, and more).

 

Consider Establishing New Performance Targets 

Things change, and you’ll want to ensure that everyone’s on the same page and moving toward their targets. Set relevant targets for your team to meet, and incentivize your team to do their best.

 

Organize Your Data

When merging multiple businesses, there is a lot more data to manage. Keeping documents, assets, and other data neat and organized is important during this process. You will need access to all of this information when merging, and mixing up or losing data can represent a huge waste of time.

 

Diversify Sales Channels

If you’re acquiring a web-based business, you’ll also want to consider diversifying your sales channels. A business that relies too heavily on one platform, or traffic source, is at a much higher risk. Instead, look to branch out and offer your products for sale on different channels; not just Amazon. 

 

Promote Teamwork 

A fascinating part of M&A is mixing cultures. New and different staff and worker relationships can fire up a business towards success—or backfire quickly. A good leadership strategy is essential at times of change. 

 

Communicate 

M&As often involve a number of people. Get your communication strategy and performance targets organized so everyone knows exactly what you’re doing and what is expected of them. This takes time and commitment. Give people time to relax and speak about existing problems and new opportunities while at the same time setting everyone up for success. Open, clear communication within and across all teams will make everything run much more smoothly.

 

Once you’ve acquired a new business, really take the time to understand the business at every level. Get out on the ground floor and get your hands dirty. By fully knowing the inner workings of your new business, you will be able to identify its winning features, along with areas that could use some refinement.

 

Perhaps my biggest and simplest piece of advice would be to stay organized. There is a lot to keep track of when merging multiple up-and-running businesses. Cover all your bases, keep lines of communication open across all fields, and keep easily accessible records and data regarding every aspect of each business. 

 

If you have all of your ducks in a row, know how to effectively delegate, and are committed to finding answers for any questions that arise, you’ll be able to pull it off with minimal hassle. At the end of the day, a merger or acquisition can be a challenging process, but in the right situations, they can prove to be an effective solution; an excellent way to grow your business rapidly, or expand into a new market that you’d struggle to otherwise. Just remember to assemble your team, have a good M&A expert on-call, and then be prepared to put the work in. 

 

For more tips to scale your business, visit: Gary Nealon.com. Also see: 9 Tips for Growing Your Business Faster.