Through dozens of M&A deals over the last two decades, Thomas van der Meulen, CEO of Monroe, Michigan-based Backyard Products and operating partner with private equity firm Source Capital, has seen his share of both success and failure. His best advice for a winning acquisition: Keep an open mind and pay as much attention to culture as the numbers.
Set the Table for Success. If it’s a non-marketed deal, you need to feel out what the seller wants or expects. When it’s a typical entrepreneurial family-owned business, the seller may have super-high expectations, which can make it more difficult. On the other hand, someone who wants their employees taken care of and the team to stay intact, likes you as a friendly competitor and believes it’s a good home for the business may be entirely reasonable.
If it’s a marketed deal and there’s a broker or intermediary involved, CEOs don’t even have to worry because it’s an auction process.
A majority of these deals are auction processes these days, because everyone has smartened up about how to get maximum value for their company and there are tons of these intermediaries out there.
Stay Flexible. There can be a lot of leeway between the first time you look at a business and you think you know how much they’ve really earned and the second, third and fourth time you’ve done your due diligence. You may find out the actual earnings are lower or higher. You may find that there’s a real estate component to the sale with some hidden value. As you go along in the due diligence process, you may find that your synergies are higher or lower. You need to have a fairly open mind for the first several months of the process.
Culture Is the Key. A lot of mistakes get made in figuring out how these companies fit with existing businesses. Is there a cultural fit? How will it run post-acquisition, and have they really thought that through? How will the existing organization absorb it? Sometimes companies are overly optimistic with add-on acquisitions. A lot of mistakes get made at that conceptual level, where expectations are high and integrating synergies seems easier than it really is. We shy away from add-ons that are not good cultural fits.
Communication. These days, unfortunately, you don’t have much time before going public with your news—a week is really about as much time as you have. So you need to have a good 100-day plan before you acquire the company, and you need to communicate that plan within your organization and with the target company, too. We have found that typically you get a lot of buy-in if you are very forthcoming and honest about what you want to do. It can be a positive not to walk in as the acquirer and the victor, but to walk in as more of a partner and make them part of it so they become a part of the plan.
Respect Where It’s Due. Ultimately, when we buy something, the company has been doing well for quite a long time and we can’t just ignore that. There is some real talent and some real knowledge, and maybe it hasn’t been done your way necessarily, but it was certainly done a pretty decent way. If you try to get the best components of both companies and do something better with it, we’ve seen that work really well.