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Business acquisitions in the COVID era: Two keys to success

Canada is seeing a wave of business ownership transitions. Many baby boomers are retiring and selling their company. The pandemic has accelerated the trend as entrepreneurs take stock and pursue new life directions.

But acquiring a new business comes with a lot of challenges and uncertainty, which the pandemic has only accentuated. In the best of times, acquisitions often underperform against expectations. That’s even more true in today’s volatile environment.

How can buyers help ensure a successful acquisition? The secret is simple: Plan, plan, plan.

1. Planning the purchase

It’s important to have a well-thought-out process when looking for companies to acquire. You should be clear about your own strategy and how the target company contributes to that strategy. Be conservative with synergy expectations, such as cross-selling and redundancies. The benefits often don’t materialize; if they do, consider it a bonus.

Also consider how the target company’s culture fits your existing business. Many transitions stumble due to poor fit. A thorough due diligence process is also vital. To advise on due diligence and other aspects of the transition, be sure to assemble a team of knowledgeable legal, tax and financing experts.

And while no one wants to overpay for a purchase, it’s not a good idea to nickel and dime too much. Buyers often need to maintain a good relationship with the vendor, who may remain involved through vendor financing or as a consultant.

Finally, think carefully about financing. Having a healthy cushion of cash in the initial months post-transaction will support a smoother transition. This means the lowest rate isn’t necessarily best; flexible terms are often important to help absorb the inevitable hiccups.

2. Planning the transition

An ownership transition can be disruptive. Management may lose focus on the existing business. Employees may be anxious about future directions of the company. The departure of the owner or key employees can impact performance. You may need to gain customer trust.

It’s important to plan how you’ll manage the transition and set timelines and milestones. Dedicate someone to be responsible for monitoring progress and catching problems quickly. Also plan how you’ll communicate with employees early on about goals, expectations and changes.

Acquiring a company can be a fantastic way to grow your business. Doing the right homework up front will help ensure your investment is successful.

Sean Crouse, CPA, CMA, is director, Growth & Transition Capital in BDC’s Ottawa office and has worked on nearly 50 business ownership transitions.