Four Key Indicators To Look For When Acquiring Companies

Andrew Scivally, CEO, ELB Learning – helping organizations create better learning experiences for their employees and customers.

Acquisitions can be a powerful way for a company to grow. In fact, all kinds of acquisition records were broken in 2021. And there is a good reason for that. Purchasing another business gives you new resources, opportunities and ideas. You can work with a new team of talented experts to expand to a whole new client base, refresh your brand and show forward momentum. Clearly, there are many reasons to pursue acquisitions, particularly when you find a company that compliments your own company's strengths.

Unfortunately, even with all of the benefits of acquiring a business, the Harvard Business Review reported that between 70% and 90% (registration required) of acquisitions were failures in 2011. There are a variety of complicated reasons for this fact, but I think many of the problems businesses run into could be avoided if they were acquiring the right brands. There is a strategy for acquisitions that goes beyond just rapid growth.

My company, ELB Learning, has acquired six companies in the last two years, with more purchases in the works. There is a pattern to what we are doing, who we work with and why we have been so successful. The selection process for the companies you are targeting has to make sense for both brands involved. I believe that being smart and strategic upfront sets the foundation for a successful acquisition in the long run.

That is a nice philosophy, but how do you translate the desire to find a great candidate for your company to acquire into an actionable plan? Using a defined set of criteria, you can clearly evaluate potential candidates and narrow down your list until you are confident that the business you are buying is a great fit.

It's important to take the necessary time to really think about what your company needs and identify the potential pitfalls in any acquisition in order to customize your criteria for choosing partners. That said, here are the four key indicators that I look for before starting an acquisition process.

1. Stable Management

A business can't run without leaders, but there is more to it than that. You may not always retain the leadership of a company that you acquire, but whether they stay or go, their legacy will definitely endure.

I've found companies with a stable management team often have a better culture, less turnover, more engaged employees and a stronger vision for the future. Essentially, everything of value you are purchasing is influenced by the leaders throughout the business.

If the leadership team is already checked out and just looking for an exit strategy, the company they are so anxious to leave behind will likely reflect that. Instead, look for businesses with passionate, involved leaders who are driving everyone toward a common goal.

2. Expertise

Whatever industry you are in, expert knowledge is a valuable commodity. There will always be someone who knows more than you about different aspects of your business. Companies with a tried and true approach within your field likely have something they can teach your existing team.

Individual experts might be a good reason to acquire a company, but there is often no guarantee that any given employee will remain once the business is purchased. Instead, look for collective expertise—ways of running the business, communicating with clients, innovative offerings and other things that you can use to propel your own vision forward.

3. A Large Client Base

Finding customers is one of the most difficult and expensive parts of doing business. If you acquire a brand new company, even if they have the most innovative technology or best service idea you have ever heard of, you could spend a significant amount of money to let people know about it.

In my experience, a better bet is to find a company that already has a large and loyal following. Focus on a smooth transition, keep a high level of service and add value to those customers so you can retain enough of them to make the acquisition worth your time, money and effort.

4. Something New

When I am deciding whether or not to purchase a company, I look for businesses that fit with our values and vision but are operating in a space that we aren't already dominant in. What is the point of paying a lot of money for something you already have? Of course, there is something to be said about shutting down competition, but for me; I want to see something new.

This doesn't mean new tech, necessarily; it just means something outside of what my business already does and the people it already serves. I want to see an opportunity to expand, whether through offering something to our clients that we did not previously have or offering what we have to a new set of clients. Both are winning strategies.

Acquisitions will probably not be successful if the purchasing company and the acquired company are not a good fit. It takes work and strong leadership to bring together two companies into a new, cohesive whole, but starting out with the right base can go a long way toward achieving that goal.

---

Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?

---