Covering Your Assets: I bought the company … now what? (Voices)

The deal is done and the signatures are dry. You’ve identified the target acquisition, completed due diligence and finalized the purchase agreement.

You’ve spent an inordinate amount of time and effort to successfully get both sides to the table. Now, there may be a natural tendency to pause, exhale and celebrate.

While the acquisition process can be an exhaustive process, the post-merger integration phase is just as important. Mismanagement/missteps during this phase is one of the most common reasons mergers or acquisitions fail. Be sure to understand how to navigate the post-merger integration for long-term success.

Overcome an organization’s lack of preparation

New owners frequently do not sufficiently prepare before a business transition. It’s possible the previous owner left unreliable operational and financial infrastructures in place, which could bring additional challenges for the new owner.

Even if the infrastructures are adequate, the previous owner may no longer be around to answer questions. Lack of clarity on infrastructure combined with a gap in legacy knowledge can also impact your recently acquired organization.

Ideally, these pain points are identified during due diligence so you are prepared. If not, you must address these hurdles after the transition is complete.

Every acquisition is different and there is no one-size-fits-all approach for a successful post-merger transition. Be sure to seek experienced guidance during the process.

You can also leverage the same people in both the due diligence and post-acquisition phases, since they have seen the organization’s shortcomings firsthand and can help identify ways to move forward.

Identify transitional needs

A post-merger integration often brings several new projects, each with its own needs and timelines.

For example, you may find a need to outsource the payroll and benefits mechanisms or hire a new bookkeeper. Realize that it may be a long and arduous process to work out costs, identify enterprise resource planning (ERP) software, and accommodate staffing.

These hard-to-calculate needs can make the transition a challenge. However, once you identify them, you can determine realistic solutions. Although you could hire staff and handle any challenges internally, doing so could be expensive in the long run.

Plenty of individuals or organizations can offer guidance and consulting, but you should first determine whether these solutions are right for you. Consider assistance from someone who:

• Wants to see the organization succeed in your vision — not someone who wants to integrate their products or services,
• can help navigate the heavy lift of the transition and then step aside to leave you confidently in control; and
• has experience dealing in the small-to-mid-sized market — and is especially skilled with founder-owned company transitions.

Common mistakes post-closing

Perhaps the most common mistake post-closing is changing systems or processes too soon. Until the purchaser has an in depth understanding of the cause and effect relationship between and action and a consequence, prudent purchasers are well advised to stay the course.

The fact is, people don’t like change. You may decide the janitorial company lacks sufficient attention to detail, and you have had enough of dust bunnies on your desk after they have supposedly cleaned.

You put the contract our for bid, and award it to a new company. Unfortunately, you didn’t know that the owner of the cleaning company is married to your biggest customer.

Another common mistake is lack of an adequate integration plan. You have “shot from the hip” from the inception of your business, and the team should be able to adapt on the fly.

The reality is, missteps from day-one of the acquisition quickly erode the buyers “capital,” and they lose credibility quickly.

Make sure you have a real integration pan before you close. Of course you can pivot along the way, but the acquired employees are generally skeptical, and you need to earn their trust.

The buyer throws the seller under the bus. This never works for the buyer, even if they are right. The acquired employees have had years to bond with the seller, even with all of their faults.

If a seller disparages them (even if deserved) the long term relationships will generally overcome the new one. The result is painful attrition.

Conclusion

Much wealth is created — and loss — through the acquisition process. Having a team of seasoned professionals will better equip you to be on the “winning” side of the equation.

Michael Bosma, CPA, is Principal-in-Charge of the Reno office of CliftonLarsonAllen LLP. His NNBW column, “Covering Your Assets,” focuses on effective planning strategies for every business owner. He’s also the host of “Bosma on Business,” which airs Saturdays at 10 a.m. on Newstalk 780 KOH. Reach him for comment at mike.bosma@claconnect.com.