The hidden cost of acquisition

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Tom was a proud father. After ten years in lesser positions at his business, his two children (Sara and Jim) were to begin higher level participation. Tom did have a lot to be proud about – his mom and pop shop had grown into a multi-million dollar enterprise that was a significant employer in an out-state town and his children had completed college and had chosen to be part of the family business.

 

Now that Sara and Jim were aboard on management, Tom felt they finally had the management bandwidth to pursue growth via acquisition.

 

Sara did the initial research. She called a dozen or more business brokers to compile a list of companies that were for sale. Jim did the initial investigation to determine whether or not they were worth pursuing.

 

When they were 18 months into the search and investigation, one company really stood out. They made an offer and were confident it would be a good fit. Now Tom and the CFO got heavily involved in negotiating and working towards a definitive agreement. Corporate counsel also became active in the process. After almost a year in the making, the seller abruptly walked away from the deal. (Within a year of that, the seller stepped down and his son-in-law held the reins.)

 

Now Sara and Jim were almost four years into this effort. Feeling some frustration and pressure to perform, they focused on another company from the list and an offer was sent. This company had been on the market for awhile and did not seem as good a fit but Sara and Jim knew it could work.

 

********************

 

Again Tom, the CFO, and counsel went to work. It was fortunate for Sara and Jim that their CFO caught the discrepancy in the inventory that Jim had missed in his review of the company’s documents. Investigation into this discrepancy opened a whole can of worms and brought to light internal theft and a poisoned culture at this company. A disaster was averted.

 

In looking back, Sara and Jim had spent four years of 100% effort plus travel expenses into acquisition effort. They had brought Tom and the CFO in for 16 months of 35% effort. And don’t forget corporate counsel.

 

A figure well into seven figures with nothing to show for it and nothing on the horizon.

 

Without understanding the process and tools required for a successful acquisition effort, owners often experience a wasted effort or worse, a terrible acquisition costing far more than the loss of time and resources.

 

Criteria definition, search & research, and the mechanics of transactions — it’s not rocket science but it is critical to executing a successful acquisition.

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