An acquisition of another business is a massive transaction for your company. Whether you simply purchasing an existing business may be one of the fastest ways to grow your own.
However, there are definitely risks that come with an acquisition. Some of these risks can impact the benefits your company derives from the purchase. As an owner or executive, it is of the utmost importance that you have a realistic idea about the risks involved in an acquisition of another company.
You could lose a lot of the top talents at the acquired company
Part of what helps you set a reasonable price in an acquisition is the talent and other resources you’ll acquire with the purchase. Bringing on talented accountants, engineers or managers can help your company thrive without investing in a protected talent search or training.
Every skilled, newly acquired employee becomes an asset to your business’s operations. However, you can expect to lose a significant portion of the staff at the company that you acquire. Unless you make concerted efforts to retain the existing staff, there will be substantial shrinkage in the first year after the acquisition.
In general, roughly a third of the existing staff will leave within a year of the acquisition. An ongoing loss of talent can mean more expenses for your company, some of which you could prevent by negotiating new contracts with the talent you have the largest interest in retaining during the acquisition.
You could overpay for the company and never recover from that mistake
Those looking to sell their company or responding to an unsolicited purchase offer are often eager to maximize what they earn on a transaction. They may not disclose details to you, like the upcoming retirement of certain professionals or the pending termination of a union contract that could lead to very expensive negotiations for you.
It is usually not a good idea to accept the company’s valuation of itself. You will need access to their financial records and facilities to determine what price is actually appropriate. Not only do you need to know the condition of the property, but you also need to know about employee satisfaction and even the company’s liabilities and debts. Otherwise, you will struggle to place an appropriate price on the company.
Identifying some of the bigger financial risks in a business acquisition can help you make better long-term plans for your growing business.