Anytime you pursue making a new company acquisition, you need to run through the typical due diligence checklist as a best practice. It's not unlike what you'd do when buying a used car where you try to ensure there is a clean title while having your mechanic make sure everything is running smoothly before you close on the deal.
When you buy a company, you might have your legal counsel make sure everything looks clean while CPA reviews the company's books. You would likely also have your operations team check out how the company is running and that you won't lose any customers once the transaction closes.
Most buyers assume that once you check off those boxes, you're good to go. But they'd be wrong. It's been my experience that limiting your due diligence in this way only leads to disaster.
The trouble is that nobody is thinking ahead to what's going to happen the day after the deal closes. If you want to help ensure that your acquisition is a success, you need to think about the due diligence process as more of an integration planning exercise instead.
What I mean by this is that when I was running companies and we were considering an acquisition, I would have my teams--the lawyers, the accountants, and the operations people--look at the company and then come back to me with the answers to two questions.
The first question was whether the company was clean enough to buy, per my checklist example from earlier.
But the second question I wanted them to answer is: what are we going to do the day after we own the business--and beyond? I wanted my teams to come back with a game plan for the next day, week, 90 days and year for what we would do inside the business and who was going to do it.
What happens so often is that a company makes an acquisition and everyone stands around slapping each other on the back congratulating each other. But no one has actually thought far enough ahead to put a plan in place telling everyone inside both companies about what needs to happen next. So when they get asked about benefits or the name of the company or the organizational structure - they shrug their shoulders and waffle. That isn't a great way to inspire confidence in your new acquisition.
That's why so many acquisitions fail. The people in the selling company wonder what's going to happen to them--so their productivity suffers. Worse, high performing employees might even choose to leave the company due to the uncertainty.
Some of the questions might even relate to benefits and about when the new team will transition to the company's health plan--all of which you can head off by having a plan in place that explains exactly what's going to happen.
When you don't explain what's going to happen ahead of time, you can also create resistance on the part of the selling company's employees--or even the former owner if they are sticking around as part of the acquisition.
If you plan to change the name of the business after you buy it, for example, and the former owner didn't know that, he or she might fight the decision--causing chaos inside the business as a result. You'd rather have that resolved before you buy rather than after.
That's why its so crucial that you lay out your plans for the business as part of your due diligence process so that everyone is on the same page and there are no surprises on day one after the acquisition. You want to create the kind of clarity where everyone knows exactly what's going to happen and when.
If you approach the due diligence process like this, you also surface any potential hit button issues early on, which helps reduce any wasted time and energy in acquiring a company that might not be a good fit.
So, if you're considering buying a company, do your homework when it comes to the usual due diligence checklist. But if you want to unlock the full potential of the acquisition, put an integration plan together at the same time. Everyone will benefit as a result.