After the global pandemic, many people started to consider alternate ways to secure their financial future. As surprising as it may seem, the majority of these considered buying or starting a business.

It actually makes good financial sense. While the market can be volatile and events like the pandemic can cause real issues, you’ll feel more in control of your finances and destiny.

There are over 1.3 million businesses in Canada. An impressive 98% of these are deemed small businesses. A large proportion of these firms are classified as micro firms, meaning they have fewer than five employees.

If you already have some financial backing, you’re likely to find the prospect of buying a business more attractive than starting one. If you choose the right business you should find it easier to return a profit.

Here’s what you should ask before committing to buying a business.

What Range Of Businesses Do You Sell?

You no longer need to live in the same area as your business. The power of the internet means you can run a business from anywhere. Of course, if you want to be hands-on, you’ll need to be geographically close.

However, if you’re not worried about being hands-on or are prepared to move, you should consider where the business is located. It can significantly affect the taxes and other charges you pay.

That’s why it’s worth asking about the range of businesses offered. A business for sale in Edmonton may have a comparable price to one for sale in Vancouver. But Edmonton has lower taxes and other business charges. That means it’s a better option as you’ll be able to maintain higher after-tax profits.

A good agency will offer you a range of businesses across industries and locations.

Why Is The Business For Sale?

There are many reasons why someone may sell a business. The most obvious are the owner is retiring or a partnership is separating.

Most reasons are genuine, but this question still needs to be asked. The owners may be selling because they know the competition has just won a critical contract or that the market is about to decline steeply. In short, they are getting out while they can.

You need to know why they are selling, and you should verify that this is a genuine reason.

How Long Has The Business Been Trading?

78% of businesses in Canada survive their first year. By year five, only 50% of businesses survive. It’s worth asking how long the company has been trading. By looking at this, the way it’s run, and the order/sales books, you should get an idea of how well it is likely to do in the future.

The longer a business has been trading the more established its systems and hierarchy should be. This is worth looking at closer as you may need to think about replacing staff, such as the CEO.

Are the Books Up To Date?

Every business should submit financial records at the end of each year. If the business doesn’t file, they will be fined. That’s not your concern.

However, if the business doesn’t have up-to-date books you won’t be able to see if they are truly profitable or not. Equally, you will need to question why this is the case. It could be poor management or it could be an attempt to hide something bigger.

If you’re looking at a business without up-to-date books then you may want to demand they are corrected or step back.

Are There Any Ongoing Lawsuits?

A business should disclose if they have any ongoing lawsuits. It’s advisable to ask to ensure they don’t. A lawsuit could cause severe financial stress for the business. Alternatively, it could mean issues with any of their products. That could make a dramatic difference to future sales and your ability to run a successful business.

It’s worth noting you can find out if any business has been involved in litigation by requesting a report. It’s worth doing this and comparing it to the business owner’s answer.

Who Are The Target Customers?

A business should have an established customer base. It will depend on the product. For example, the latest tech is often targeted at younger people.

You need to assess their product and their target audience. It will help you decide the level of competition and whether you’re likely to encounter difficulties continuing to trade in the same way.

Summing Up

The final decision is yours. It’s advisable to collect as much data as possible before you decide whether a business is a viable investment or not.

But remember, a business that is floundering can be purchased for less. If you have some good ideas for restoring its fortunes, it can still be a viable investment. It all starts with asking the right question.

In today’s competitive business world, many organizations are choosing to focus their growth strategy through mergers and acquisitions. The value proposition for leaders is that by joining forces with another organization, growth can be more exponential and accelerated when compared with attempting to expand organically. When an organization is considering a potential merger or acquisition, they often place a priority on evaluating the prospect’s industry segments, geographic footprint, revenue, and service offerings. While this is critically important to achieve the desired goals, if the people & culture component is overlooked, there is a significant risk of turnover, low engagement, and low performing teams which in turn affects the experience for clients and ultimately organizational performance. This is where HR leadership has a critical role to play.

Before we dive into some best practices, I’d like to take a moment to differentiate between a merger and acquisition as these words are used interchangeably. A merger occurs when two organizations agree to join forces to create a new, joint organization. The recent merger of BKD and DHG to become FORVIS is a good example of a merger. Conversely, an acquisition is where one organization is absorbed by another. The recent agreement for tech giant Oracle to acquire Cerner is an example of this type of transaction. It is important to note that since an acquisition can have a negative connotation as a “takeover”, it is sometimes informally referred to as a merger, leading to the use of these terms interchangeably. Now that the business lesson has concluded, let’s return to the topic at hand.

Regardless of the type of transaction that is taking place, it is essential to have people strategies as a central component, particularly at the onset of conversations between two organizations. For this to occur and for HR leaders to be invited to this conversation, a prerequisite is for these individuals to establish credibility as a strategic business partner so they can have a seat at the table. For more on this topic, visit my blog and download the whitepaper “How to Get a Seat at the Table”.

To truly put people first, here are five best practices to consider for your next merger or acquisition:

Conduct People Strategy Due Diligence

At the onset, a people workstream should be formed to conduct due diligence for the prospect organization. This team’s responsibility is to evaluate the following elements of the potential transaction:

• Cultural Values
• Benefits Structure and Philosophy
• Compensation Structure
• Critical Policies
• Personnel Structure
• Performance Processes

The focus of the people workstream is not to look for 100% alignment in all of these areas, but to envision what the future state of the organization would look like given this information and how it would impact the employee experience. Even if the prospect organization would be forced to transition to the acquiring organization’s policies and practices, how would this transition play out and would differences have an impact on employee morale and retention? Alternatively, would there be elements of the prospect organization that you’d want to adopt? These are just a few of many questions that you’ll want the people workstream to dig deeper into.  

Develop a Consistent, Repeatable Due Diligence Process

Especially if you are an organization that plans to have significant M&A activity in the future, there is great benefit to having a well-thought-out process that can be replicated and scaled up/down as you look to evaluate a variety of different prospects for a merger or acquisition. It is important to have an “apples to apples” comparison process so that you are consistently looking at the same metrics of each organization being evaluated so that you can be objective in the decision-making process. This does not mean you would need to have similar size organizations you are evaluating, but rather a consistent set of principles to operate from as you do the due diligence. For example, if you are looking at three different organizations, using the same principles for evaluating benefit structure and philosophy will help you clearly identify the best fit given your goals for the transaction.  

Develop a Robust Internal Communication Plan

Likely one of the most important elements of the M&A process is communication, and more specifically, internal communication. There are two components to this: the announcement and the integration. During the announcement phase, important elements will need to be considered such as how and when your employees find out about the deal, who they hear it from, and what type of medium the information is being disseminated in. Moving forward to the integration, employees need to feel as though their organization cares about them, regardless of what side of the transaction they are on.

Below are three key goals that should drive your communication plan:  

1. Engagement and Retention: How will you provide the opportunity for team members to stay informed, feel invested in the change, and have a compelling reason to stay?
2. Career Planning and Development: What will you to do help your team members connect the dots between now and the future as it relates to their career growth?
3. Team Building & Connection: When the transaction is complete, what will you do to empower your leaders to facilitate high performance and connection within newly formed teams?   

Create Great Onboarding Experiences   

Particularly in the case of an acquisition, it is essential to have a thorough onboarding process. This begins with the sharing of basic organizational information, operations, and benefits, but extends beyond the first day to help new employees become assimilated into a new culture. During their first 90 days, employees will begin to form opinions about their role, their leader, and the organization overall. How they feel about these components will drive the likelihood of retention. As a result, there is a great opportunity to create a world-class onboarding experience for new employees to include elements such as the following:

• Local social gatherings
• Team building events
• Exciting project opportunities
• Intentional coaching conversations
• And much more!

If you can envision the first 90 days like a “red carpet” treatment where each employee is taken through a personalized experience, the chances of that person feeling engaged and connected is high and the probability of them staying is increased.

Mergers & Acquisitions: Closing Thoughts

There’s no way around it; mergers and acquisitions are hard. Having been through many of these through my career as an HR leader and employee, I can attest that there are always challenges to overcome and varying perspectives to navigate. But the one thing you can control is to have a well-thought-out plan in place that puts your people first. If you do this, your chances of success will only increase.

If you are looking to learn more about mergers & acquisitions or are getting ready to go through one and would like a guide to lead you or your team, I’d love to help!

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Context

How to acquire the company with its own money: XYZ is our main competitor, with similar activity than ours, but complementary and of great marketing interest. Its 2XXX revenue amounts to $110M and its financial result is nil. In 2XXX, XYZ shareholders gave up ownership, as a result of an LMBO (Leverage Management Buy Out), to 4 executives holding each 25% of the equity. The September 11, 2001 events produce tragic effects for the entire community of the US travel operators, and early November 2XXX, following a meeting in Chicago with XYZ’s owners / managers, it happens that their company is for sale at $7.5M asking price. Our shareholders give us clearance to undertake such acquisition. I issue a conditional offer, at $7.5M price, subject to due diligence, after which payment terms will be exposed and final commitment given. The four XYZ shareholders agree.

Actions to acquire the company

Whilst performing due diligence, I detect that $1.8M in cash are blocked, of which $1M with USTOA (US tour operators association) to protect customers deposits against bankruptcy risks, circa $600K with their credit card operator and roughly $200K with various suppliers. Ourselves we have a $1M deposit with USTOA, which constitutes the statutory limit. Here comes to my mind the idea of recouping all these deposits and to use them to partially fund the acquisition. I check and then confirm the feasibility of such approach. Furthermore analyzing how XYZ is handled shows that numerous opportunities exist, to merge or optimize activities (marketing, accounting / Finance, IT, call centers, etc.) In my opinion delivering a $1.5M net profit is quite achievable at the end of year 1, tax free if we purchase the stock, which constitutes a reasonable assumption supported by the fact that no legal risk has been found during the due diligence. And lastly the XYZ shareholders agree to be partially paid in stock. Using the same criteria they have themselves used to appraise XYZ at $7.5M, and over valuating our technology at $50M, I end up appraising our company at $87M. Thus, and even though our revenue is only twice theirs, I valuate us at 12 times XYZ. To be honest I was expecting serious objections about my valuation. At the end of the due diligence, and after getting clearance from our shareholder, I articulate the final offer, which stands as follows:

• $7.5M for the entire stock, payable
• $2.5M in cash at closing,
• $2.5M in cash payable 12 months after closing, and
• $2.5M in our common stock, only representing 2.86% of the total equity.

Appraising ourselves at $87M is not fought against, as XYZ share holders mostly focus on the cash portion of the deal. After a few minor modifications our offer is accepted.

Results and appreciation after acquiring the company

By the end of January 2XXX the purchase is completed and XYZ belongs to us. Within 4 months the credit card processor is migrated and the $1.8M total deposits are captured back. 72% of the initial payment is done using XYZ’s money. XYZ’s CEO is quite effective and we keep him in his position. I rebuild with him the 2XXX budget and shoot for a $1.5M net profit. By the end of 2XXX, all restructuring operations are satisfactorily completed and the financial outcome is a net $1.8M profit, thanks to using losses carried forward. I use this result to fund 75% of the second payment. By the end of 2XXX, after I have left for other business opportunities, I learn that XYZ’s profits have continued to increase. Thus the cash portion of the deal has entirely been paid with XYZ’s money, in less than 18 months. Subsequent to acquiring the company, our revenue jumps from $200M to $320M, or 60% growth. The profitability increase is harder to measure as our shareholder takes advantage of our external growth to reduce the commission rates granted to sell their products (which constitutes transfer pricing…but this is another story). However they demonstrate satisfaction by paying the CEO and myself an exceptional bonus.

About the author: Patrice Suncic has 32 years of international experience in corporate & general management. He is a aajor actor of change, able to transform business processes and generate improved efficiency, productivity and profitability, whilst maintaining social cohesion and has strong purchasing & negotiation skills.