Create a plan
To execute on any idea, you need to have a goal and a clearly defined strategy on how you’re going to get there. An acquisition is no different.
“A lot of times, I think acquisitions are somewhat reactive — someone approached the company or the company is aware of a particular firm and they extend exploratory discussions,” LaLonde says. “Whereas we have something called our acquisition strategy and it details what we’re trying to accomplish as well as the methodology that we’ll take to approach and assess opportunities.”
The wrong acquisition can cripple your company financially or even culturally. To find a company complementary to yours means the preparation and details put in on the front end are crucial.
The first question you need to ask yourself is: What are your company’s goals and objectives? Through that analysis, you can determine how large of a role acquisitions should play in your expansion.
Even if it doesn’t take precedent or it falls far down on your list, if there’s a possibility an acquisition is in your future, you need a plan.
“From a process perspective, follow as if it’s that pre-eminent spot,” LaLonde says. “In other words, have an acquisition strategy and have acquisition criteria.”
LaLonde says the company values and goals should be set by the CEO.
You need to look at internal and external factors that will ultimately play into your strategy and its subsequent criteria. Internally, you’re looking at your objectives and goals to see if and where an acquisition fits. Triplefin’s strategy includes finding niche players that can add an element of innovation to serve its clients’ needs.
Externally you might be looking at factors such as the marketplace or the economy.
For example, in this recession, Triplefin saw benefits in low interest rates, the number of distressed companies and a decrease in seller expectations. Triplefin was able to capitalize on market conditions and close four deals.
The strategy will be rendered useless unless you take it one step further and set criteria and parameters to weigh potential opportunities.
“Otherwise it can look a little bit as a scavenger hunt of sorts,” LaLonde says.
Questions to think about for your criteria are: How much are you willing to pay for a company? Where do you want the company in question to fall in terms of revenue and profitability? What are you looking for in leadership and employees? What are your geographic boundaries?
It might be something simple, like stating you will acquire no more than five businesses in a particular industry or a limited number of locations overall. Or, it could be a maximum limit on acquisition price.
“It just needs to be relative to where the particular company is. The acquisition criteria will be something that you can then take an opportunity and weigh it against your criteria to make sure it’s within those parameters.”
Part of Triplefin’s criteria plays off its decentralized-governance model. If Triplefin is looking to take over a company but leave the leadership intact, there are certain elements and characteristics it requires of that team, such as exhibiting a strong entrepreneurial spirit and the ability to work in a decentralized organization.
Remember, like LaLonde, you should view this as your guide to walk you through a successful acquisition. The more specific your strategy and its subsequent criteria and evaluation process, the narrower your company search and the more obvious a match may be.
“Get a strategy — get a clearly stated goal with excruciatingly detailed criteria,” he says. “What are your criteria? Your limitations? Because that’s going to really help as you (say), ‘OK, now who do I call?’”
