Get to know the Business Acquisition Process and the Integration Process Stages

The business development process can develop as planned stages for better company conditions. The development of a business is also greatly influenced by economic conditions. For this reason, decisions taken by a company can be caused by economic problems.

One example of changes that occur in business processes is company acquisitions. Some entrepreneurs look for ways to encourage business development by making acquisitions. This is considered one of the methods chosen by entrepreneurs who want to retire and sell their companies.

Definition of Business Acquisition

A business acquisition occurs when a company buys most or all of the shares in another company to take control of its assets and operations. The acquiring company usually has targeted a company and made a specific business deal.

Usually, the nature of the acquisition is carried out in a friendly manner. This means that the two companies join forces and negotiate the terms of the transaction. However, the acquisition process is sometimes considered a takeover process which can have a negative meaning. In other words, the acquiring company seizes control of another company by buying a majority of shares (acquisition) against the wishes of the target company's board of directors or management.

The acquisition process often arises because the company is in a mature life cycle. No matter how well it was done, there was no other way to grow substantially as the business matured. The only way to grow is to take market share from competitors. Acquisitions can accelerate a company's growth in the following ways:

• Increase profitability
• Increase market share
• Opening up new markets
• Achieve increased productivity through economies of scale

Business Acquisition Stages

The business acquisition process is not a simple thing that can be done just by having an agreement. When an acquisition occurs, the decision arises because it has gone through a long stage. The following is the process that occurs to carry out a business acquisition.

1. Preparing for the acquisition

An important first step in carrying out an acquisition is the estimated time for carrying out the process. Entrepreneurs often take longer to complete transactions than anticipated. When deciding to pursue an acquisition strategy, it should take at least six months to close a deal.

In the early stages of acquisition planning, you will also need to assemble an internal team and field external advisors who are highly experienced in the business “buying” process. Once you have an acquisition team, it's time to start looking for suitable targets with careful planning.

2. Initial negotiation and pre-sale

Before entering negotiations with a potential target, you should definitely do as much research as possible about the target company. In that position, one of your main weaknesses is information asymmetry—you can never know the target as much as the salesperson knows about the business. Even so, one of your main goals is to close as many information gaps as possible before completing a transaction.

At this early stage, explain the reasons for your interest in the business and try to get information about the seller's expectations in terms of selling price. You should also look for some basic information about the company such as sales, gross margin, earnings before interest, taxes, depreciation, and amortization (EBITDA).

When seeking information about the target company, conduct parallel discussions for potential financing options with bankers. At that point, you will also arrange financing which can come from various funding sources such as cash on the balance sheet, bank debt, and vendor financing.

3. Due diligence and purchase agreement

Conduct an objective analysis of the business to be acquired to conduct due diligence and negotiate a purchase agreement. Here, it is important to involve an experienced team in studying the company to identify key company issues such as the company's balance sheet, company managerialism, the owner's willingness to help with the transition, and the cultural compatibility of the two companies.

The due diligence process is critical to the success of an acquisition. Therefore, avoid shortcuts to save costs or meet transaction deadlines. Don't ignore negative findings or rationalize them to maintain optimism about a deal. The final step to complete the transaction is to finalize the purchase agreement by making the necessary adjustments.

4. Post-merger integration

Once the deal is closed, you can't rest. How you integrate a new business into an existing business can make or break a company. You should prepare a plan to guide you as you put your company together and put someone in charge of the process.

Integration takes time and is not always smooth because there will always be obstacles that arise. You may need more money, time, and/or resources than expected. Prepare a flexible financing plan and think about the possibility of the unexpected.

Understanding the stages of acquisition above shows that this process can be a challenge for both the acquiring company and the target company. For this reason, the key to a successful integration must be carried out responsibly for the goals that we want to achieve together through the business acquisition process.