Lessons Learned From Past Acquisitions

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Acquisition Strategy

A buyer must create a comprehensive acquisition plan in order to complete a successful acquisition. All successful strategies must be flexible, but you need to determine the right fit and what to look out for in an acquisition target. This can help you save time and money down the road and serve as a guideline for your strategy. You should consider basic factors such as target industry, location, strategy, corporate culture, and financial criteria. commission revenue production, loss ratios, retention rates, gross profit, earnings, etc. Management strength, geographic markets, and transaction structure (e.g. total price, notes, earn outs, etc.) How the deal will be funded.

Pricing Rationale

Buyers should be ready to explain and discuss their pricing reasoning. It is important for buyers to communicate effectively and negotiate on the basis of a sound financial plan. This will help them move past pricing stalemates. Arguments about higher or lower prices are not a win-win situation. To support your valuation argument, be prepared to give a wide market and regional comparison of current pricing. Talk about issues like working capital, capital expenditures and additional investment requirements. Discuss how they affect the purchase price. Be prepared to do your research so you can clearly articulate your pricing rationale.

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Flexible and creative

Buyers need to be creative and flexible in order to maximize the chances of a transaction being successful. Alternative structures can often be negotiated to achieve a better deal for both sides and shift the focus from a zero sum pricing argument. In acquisition negotiations, both parties often use the term “win-win” too much. However, both sides often overuse the term “win-win” in acquisition negotiations. Flexibility and creativity often result in a deal structure and price that is fair and reasonable for both of them.

Due Diligence

Inadequate due diligence is the most common problem in acquisitions. If buyers are asked about their time spent on the acquisitions process, they will often find that more time was spent negotiating the deal than due diligence. If the buyer had done better due diligence, many surprises after closing could have been avoided. While due diligence can take many forms, it should at least include thorough financial, operational, and legal reviews. Your due diligence team should include senior management, finance, legal, and M&A advisors. Expert advisors can help you create detailed checklists to ensure that every area is properly analyzed.

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Expert Advisors

Many buyers make the costly error of not engaging qualified and experienced professional advisors. These professionals include accountants, attorneys, and investment bankers. Buyers don’t realize the difference between the cost of professional advisors and the cost of an unsuccessful or poorly executed acquisition. Agency owners don’t have the ability to acquire acquisition expertise as a core competency. Expert advisors can provide invaluable market knowledge and critical expertise to help a buyer make a successful acquisition. The cost of professional advisors, which includes any additional costs for non-compliance, can be the best investment a buyer could make. The goal is to make the right acquisition at the best price and terms. When dealing with professional advisors, don’t make the mistake of “penny wise, penny foolish”.

Walk Away

Buyers can become emotionally attached to deals as they invest their time, energy, and money. Many buyers are better off if they don’t complete every transaction. A buyer often ends up being financially more successful if they don’t do the deal. The cost of an acquisition is not just measured by its cost, but also the ongoing financial and intangible expenses that can easily exceed the transaction’s capital investment. It is important to keep an objective view of possible acquisitions and to remember the key criteria for completing the acquisition.

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Motive

It is not important for buyers to spend too much time or energy trying to figure out the motivation of the seller. It is crucial for buyers to understand the real impact of the transaction on the agency once the seller has left. Although most sellers will say they will remain after the transaction is complete, reality can change over time. Buyers need to be able to assess the potential impact of the seller’s exit on the agency. It is important to understand the relationships with customers, carriers, employees, and, most importantly, the impact of selling the agency. Strategies should be developed to minimize disruption after the sale.

Selling is buying

A buyer may believe that if they are able to offer the best price, they will win. This view is contrary to one of the fundamental principles of negotiation strategy: buying is selling. The seller’s main concern is not financial. They need to find the right buyer. Also, how the buyer will treat their employees after the acquisition is complete. Buyers should not lose sight of the importance to be thoughtful and respectful during acquisition.

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Seller’s Advisors

Because they recognize that selling their business is not something they do every single day, sellers hire professional advisors. Buyers must recognize the importance of advisors to sellers and work directly with them. A fee paid by the buyer as part of the purchase price is an under-utilized strategy. Buyers should recognize that advisor fees are a part of the transaction price regardless of who pays them. Buyers may gain significant “goodwill” if they offer to pay the advisors fees. This could make the difference between a successful or unsuccessful acquisition. Remember that selling is buying!

Nothing will change

Many buyers make the mistake of promising sellers that they will not change their minds after the acquisition. Although the seller may believe that such a promise will help to close the deal, sellers know that it is not. Although change is not something that people like, it can bring about positive outcomes if communicated well. Tell the seller what changes you are expecting to make in the short- and long-term. Also, get feedback from the seller about your intentions. It is important to get the feedback of the seller and have them participate in the decision-making process. This will help you to get “buy in” and aid in the integration process.

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The Deal is done

Everyone remembers the thrill of closing the deal. The excitement of closing the deal with Time Warner and AOL and all the wonderful things that were to come was still fresh in our minds. Although closing the deal is an important milestone, it is not the most difficult part. A deal is made up of two parts: closing the deal and integrating it. The most challenging part of an acquisition is the integration. The reason most acquisitions fail is not the price paid but the inability to properly integrate the company financially, operationally, and from a managerial perspective. Thinking that the deal is complete is the biggest mistake.

Your chances of success are greatly increased if you plan and strategize carefully before you begin your acquisition process. Any buyer can implement a successful acquisition strategy by adhering to the fundamental concepts above. This will allow them to avoid costly pitfalls.