When building an acquisition pipeline, it’s not enough for a buyer to have a strategy. Rather, a buyer has to share that strategy with his or her team, and that includes deal professionals.
“We find that buyers who know a strategy going in — and communicate that strategy to their advisers — it helps us help them,” said Amy Rudolph, director of transaction advisory services at RSM US LLP.
Getting, and keeping, the deal team on the same page is important. For example, Rudolph says if it’s clear that a target’s EBITDA is really important to a buyer, or that it’s not important at all, that has to be communicated so that the focus out in the market is clear. That focus not only helps advisers in every aspect of the process, it can also help professionals on each side of a deal work more efficiently together.
Rudolph spoke at the St. Louis Smart Business Dealmakers Conference earlier this year, offering tips for serial acquirers on creating an acquisition playbook that leads to consistent success.
The involvement of deal professionals on one side of a transaction can help the process for everyone involved. Rudolph says nearly every time her firm works with a seller, there’s an investment banker involved.
“We find them especially helpful for sellers who are maybe not as sophisticated or maybe haven’t been through the deal process before,” she says.
And on the buy side, Rudolph says it’s helpful to have investment bankers representing the seller because they’re able to coach the seller so they have a better idea of what to expect in terms of diligence.
“A deal can be super overwhelming and there is fatigue that is definitely involved in all parties,” she says. “The investment banker can really set expectations and help the process, so we would work closely with them to provide guidance together and help the process move along smoothly.”
Iron out the details
Acquirers should also consider, as part of their acquisition strategy, how they’ll approach diligence. One area of diligence she says doesn’t seem to be getting a lot of attention is cyber and IT.
“At the onset, the cost of IT diligence seems high when you’re already doing financial and tax, and you’ve got the attorneys,” Rudolph says. “Those costs add up. But to the extent that it mitigates or identifies a huge issue, it could save you millions of dollars. In the short term it’s a small amount of money, but it could save you a huge amount eventually.”
Another aspect of the overall acquisition plan is the post-transaction strategy. One move to consider, according to Rudolph, is keeping an owner around after close. She says offering the founder rollover equity as part of the deal can help the new owners not only continue to grow the company after the transaction has closed, but they can also be a great resource for building the acquisition pipeline. Owners can serve as an example to potential acquisition targets that the buyers keep their word. That, she says, is a great way to build the newly acquired company.
Knowing your strategy and communicating that to your team is the foundation of building an effective acquisition pipeline. Because when a deal doesn’t fit, everyone can see it and walk away before time and money are lost.