Are You Future-Proof?

The initial posts in this series on the steps to buying a business outline the preparations you can make before the three-stage, formal acquisition process begins, along with the mindset you must adopt to achieve the best results.

The formal process begins after you’ve engaged an M&A Advisor, but your preliminary preparation will give you an advantage.

In upcoming posts, I will review the three formal process stages you’ll progress through with your M&A Advisors: preparation, market outreach, and deal closing. At Stillwater, we have perfected our acquisition process through extensive experience, so we can equip you for the demands of each successive step. However, that includes helping you get ready for the race, before it begins. So, we remain focused in this post on your steps to readiness.

As previously discussed, you will want to walk into your first meeting with your M&A Advisors with a clear grasp of your company’s business strategy, mission, and vision for the future, and how a potential acquisition will further each of these.

You won’t buy the company you need if you don’t know the company you are.

For me, this speaks to the necessity of future-proofing your business. The company you acquire must boost the health and lifespan of your own company over the long term. This requires an incredibly careful and focused selection process as you play the tricky game of shoring up your future benefits and defenses, while also mitigating against future risks. A smart acquisition helps the future of your company. A hasty acquisition will not.

I see clients gravitate toward a particular business or market in the early stages of the acquisition process for two main reasons:

The first is that the company for sale is a bargain.

In some circumstances, pricing is a legitimate reason to purchase a business. However, most often it is not. If a great price is your sole determinant, you are rolling the dice on whether the deal will benefit your current company in the long term. (Be cautious, also, with M&A Advisors who talk about bargain-hunting over anything else.) Bargain or not—if it’s not the right fit, it won’t perform.

The second reason you may be drawn toward a particular business or market is a better one: it fits with your overall strategy for the future of your business.

Profit will always be a key factor, of course, but with a future-focused strategy driving your decisions, you’ll make smarter choices. If your company has a firm grasp on where you are headed next, you’ll have gained clarity on things the business needs to get there. That means you and your advisors can ask the right questions and look in the right places for an acquisition that is going to meet those needs:

  • What does Company X have that you’ll need in the future?
  • What can Company X do that you can’t?
  • How will owning Company X help or hinder you in making the pathway straight towards where you need to go?
  • Will it provide future-proofing, or future risk?

Google, and its parent company Alphabet, give us a useful (if controversial) public example of a future-focused acquisition strategy at work. In its early days as a fledgling tech behemoth, the press covered Google’s actions with mild scorn as they watched a search engine snap up company after company, all seemingly unrelated to each other or to Google’s central function. Just two and a half decades later, observe a company with powerful reach and influence in nearly every sphere of human existence. Those early purchases have a lot to do with who they have become. If they seemed foolish to an outside observer, you can be sure there was a very precise and forward-focused strategy driving their acquisitions.

You can start the process of buying a business with the same focus. I suggest two simple ways to ensure you’re starting with a forward-looking strategy:

KNOW Your Plan.

Don’t just revisit your strategy—learn it and know it. Breathe it. Become it. Think about it from every direction. Know how to explain it in 45 seconds or converse knowledgeably about it for an hour with equal comfort. Get your kids to test you about it at the breakfast table. Annoy your colleagues by connecting it to every discussion.

Don’t – or you risk making your strategy an empty gesture – keep it as a 10-page document marked ‘important’ tacked to a corkboard that nobody ever really looks at. You need your future-focused strategy to be infused into the DNA of your company. It should drive all the decisions you are required to make.

TEST Your Advisors.

If the M&A Advisors you’re considering are talking more about quick money and great bargains than asking questions about where you see your business in 5, 10, or 20 years… I would respectfully ask you to reconsider your choice of M&A Advisors. If they are not focused on your future, their approach to the acquisition process won’t help get you there. It’s important to ask these questions as you begin because you want to be in a future-focused mindset as you proceed through the acquisition process. A quality team of advisors will keep you looking forward.

Contact us at Stillwater Capital. We help keep you focused on what’s next for your company and find the acquisition that will help get you there.

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Written by: Douglas Nix