Breaking It Down: The Seventh of the Ten Commandments of Business Acquisitions
Our Ten Commandments of Business Acquisitions has been so popular that we have decided to break it down. To briefly discuss each of the Ten Commandments, and its import and impact.
After a brief break to spotlight current events at the Center for Free Enterprise (see below for the next event RSVP), and to share a couple timely articles, we're back this week with Commandment #7.
The Seventh Commandment: "Establish and Maintain Acquisition Momentum to Meet Your Timetable"
Attractive acquisition opportunities are difficult to find.
Potential sellers are often under a tight timetable, and are often evaluating purchase offers from multiple potential buyers.
As noted previously, as the prospective buyer, you will often have only a limited period of time to negotiate exclusively with the owner/seller.
Therefore, proceed with dispatch in order to secure the acquisition opportunity and close on the purchase of the business.
Momentum is a significant factor in mergers and acquisitions. While, as a prospective buyer, you should most certainly undertake thorough due diligence relative to the acquisition opportunity, it is very important to maintain and sustain momentum throughout the acquisition process.
Many prospective buyers hem and haw and wait too long to proceed with the contemplated acquisition. This delay can result in a loss of momentum and can kill the deal.
Therefore, a prospective buyer who has identified a suitable acquisition opportunity should consider making a written offer as early as possible in the process. The offer should be in the form of a letter of intent and will be non-binding and subject to various contingencies (including successful completion of due diligence). An offer subject to further review is infinitely more credible and serious than no offer at all, and allows the prospective buyer to make further inquiry before proceeding. By offering a letter of intent, a prospective buyer will have gained the owner's/seller's attention as a credible buyer willing to make a legitimate and serious offer.
Once an exclusive negotiating arrangement and window is established, a prospective buyer should establish realistic timeframes for due diligence, negotiation, documentation, and closing, keeping in mind the critical importance of momentum in the acquisition process.