Buying a Company

May 20, 2011

One way to grow your business is to buy a company with products or services that complement yours. Or you might buy a competitor and merge products or services to create better products or services. Even if both scenarios sound great, there are other parts of the equation to consider that many forget about in their excitement to take business to the next level.

Buying a business not only means more products and resources, but also it means considering:

  • Employees: Would you be willing to reorganize the business? How will you handle job overlaps? You may get away with treating the bought company as a separate company for a while, but the company performs better when reorganizing the organization chart for improved efficiency.
  • Culture: It's almost impossible to find a company with an identical culture. A buyout or merger requires a culture change and new way of working for both companies.
  • Building and leasing issues: Will you keep the bought company's building and leasing agreements? Do you want to hold the buyout until the timing is right so that the lease ends at the right time?

Remember when AT&T, SBC, Adobe, Macromedia, HP and Compaq were separate companies? Now we know them as at&t, Adobe and HP. The Adobe / Macromedia buyout was interesting to watch as both had strong products. Adobe wisely retained Macromedia's stronger products and incorporated them into its software suites.

Merging the two software companies involved a major reorganization and overhaul from bottom up: employees, products, buildings and more. You may be able to do business as usual when buying a company that isn't a competitor. But will you be maximizing both companies' resources and taking advantage of new opportunities?

Here are three tips to buying a business:

  • Pick a business that interests you: If a great deal falls in your lap, you don't want to swoop it up unless you've looked at all the factors. Many people go into a business because it's a natural money maker and not something they enjoy. When you don't like something, it'll be harder to motivate yourself to do what it takes to help it thrive.
  • Investigate the company: A good partnership between two businesses takes more than products, management and financials. If you didn't approach the company first, you'll want to know why the seller wants to sell the company. Good research also looks at the company's culture, employees, organization, history, locations, inventory, current customers and cash flow.
  • Prepare for negotiations: Hire a business broker or facilitator who can help you do your due diligence. You may need to explore financing options such as taking out of a line of credit. Having this ready before negotiations ensures you negotiate a doable deal and have the resources you need to pay for it.

It's natural to feel excited about the possibility of growing your business by buying a company. This is similar to what many people do in starting something, but not finishing it because they discover it takes a lot of work to make it happen. If you accept it will take time and energy to make it happen, then rewards will follow.

What other tips do you have for buying a company?