As a small business consultant I review a lot of business plans as well as plans for one company to acquire assets of another. As you can imagine some of these transactions become very complicated and complex as the various parties work to protect their investment and eventual payouts.
Over the years I have discovered some common “red flags” that seem to crop up in almost every transaction or this type. With a little planning and communication these setbacks can be avoided and a smooth process will result.
Here are a few things to look for during this process.

Business Assumptions:

There are two common assumptions that don’t always become evident until well down the road from the initial contract signings.

One, the actual costs shared in completing all the changes almost always costs more than the parties projected. Relocation of equipment, computer networking, accounting system glitches, travel between offices, meeting schedules, personnel changes, union contracts, employment training are just some of the disasters waiting to happen all along the way. You will probably hear “So-and-so was supposed to take care of that,” in your sleep.
Two, the projected time line for everything to be in place and profits being generated is rarely accurate. As mentioned above these agreements can turn into lengthy meetings and sometimes promises are made just to move the process along because time is money to all the parties involved.

Another very dangerous assumption is that everyone will “just get along.” People don’t like change, they don’t like disruption of their lives and their job description suddenly has more pages than the heath care bill. If things are not explained properly to all parties you run the risk of losing some good employees because someone was assured they would be the one in the corner office with the executive bathroom.
It’s never a bad idea to build in some extra cash and extra time to make sure that any speed bumps don’t derail the whole project. Try to remember how smoothly your last move was.

Mergers and Acquisitions

Many of the larger Fortune 500 companies will have their own “Mergers & Acquisitions” departments. It is the responsibility of this department to look for companies that will strengthen a company’s competitive advantage or increase its profitability. It would probably be helpful to explain the differences between a merger and an acquisition.

An acquisition is usually a process where Company A has a weakness and acquiring Company B would fill that void. Or, it might be a case of one competitor buying out another one to reduce competion and increase their customer base. Any overlapping personnel, products or equipment deemed not profitable would be eliminated or sold off to help offset some or all of the acquisition costs.

Two companies that will be stronger in the marketplace working together than they would apart or for the company to attack new and emerging markets commonly use a merger. Many mergers will leave the brand name of the merged company intact. For example, Unilever, British-Dutch company, has over 400 brand names though 25 account for 70% of their business. They are very diversified in their mergers and acquisitions. They acquired Slim-Fast and Ben & Jerry’s Ice Cream on the same day covering both weight on and weight off markets. They are the world’s third largest consumer products company after Procter & Gamble and Nestlé.

Assumptions, Mergers and Acquisitions are a lot like marriages. Some are made in heaven and others end up in court and end badly. The best advice I can impart is to use the best professionals you can find. They are worth their weight in gold. Good accountants, good attorneys, and experts at buying, selling or merging businesses will save you time, money and insure a mutually profitable future for all.

Tom Egelhoff, www.smalltownmarketing.com, is the author of, “How to Market, Advertise and Promote Your Business or Service in Your Own Backyard.” Listen to Tom’s weekly radio show, “Open for Business, 11-2 PM Mountain Time every Saturday at http://kmmsam.com. Click “Listen Live.” Also, check out Tom on Twitter, Facebook and LinkedIn.