Managing the Many Moving Parts During Acquisitions and Exits

The buying and selling of companies is big business, and ends up being what defines a company in the grand scheme of things. So how exits and acquisitions are managed is extremely important to companies and their leadership from a business standpoint. However, more often than not, acquisition and exit strategies are very rarely paid the attention they deserve. And yet, a good acquisition and exit strategy is the beacon that every entrepreneur should always set his sights on.

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Directi CEO Bhavin Turakhia

Exits and acquisitions are two sides to a very important gold coin, and while they may be diametric opposites, they share some common ground beginning in the change they bring about in the businesses they involve. This change is significant to both exits and acquisitions, as they could possibly be the undoing of the company. Take for instance the ill-fated merger of AOL and Time Warner. One of the primary reasons for its failure was attributed to ineffective change management of cultural and organizational change. An oft ignored aspect in these dealings is the interest of the employees – the organization’s backbone, which is one of the most important aspects of change management. No two company cultures are the same, and this is the main cause of the problems encountered while getting people from different environments to work together.

For me, putting in place the right kind of change management strategy and executing it well is a primary factor when preparing for either an exit or an acquisition. Change management is not signed off on paper as part of these deals, while the other major things are. This is not something for the HR team to just ‘figure out’ and put ad hoc measures in place for, once a deal has gone through.

Additionally, there are a number of other factors that need to receive their share of attention.

It all starts with planning…

  • To break it down, begin with examining the decision of why you’d like to go through with the acquisition deal. Based on your answers, you should be able to plan your deal efficiently. Planning an acquisition from early on credits leadership with foresight, and ensures that the business gets the best possible deal. It is the planning process that ensures that the entire affair goes through without any bottlenecks. This process could sometimes span months and even years, and involves preparing all angles. From including changes in internal and external processes, to legal and financial decisions and operational commitments, planning your acquisition strategy well is hugely beneficial, no matter how long or how much money it takes.
  • For exits, planning would involve assessing your company’s viability to make a good sale, followed by weighing your options available in the market. Study the market, plan well and then evaluate your options before making an exit. Without letting your emotions or any external factors affect your decision, answer these questions for yourself:
  • Is the market and your business currently ripe for the undertaking?
  • Do you plan to make a complete exit from the business?
  • Or would you like to just sell a percentage stake? If so, what percentage and which business units would you like to sell?
  • Do you still intend to stay associated with your company in the same capacity?

Keep in mind that the terms of the deal are often more important than final valuation, and how much you will earn out of the deal.


Complete your due diligence

  • I’m sure, I don’t have to cover examining the fine print here for acquisitions. The larger picture, however, is to make sure you study every nook and cranny of the business you plan to acquire. Look through every skeleton in the financial closet, and understand the impact it may have on your current business. Examine the debt you are absorbing, if any, and its implications on your financials. By completing your due diligence and factoring in the standard metrics of accrued debt and EBITDA, you will ensure that you maximize the profitability you derive out of an acquisition. Carefully evaluating your options will allow you to make the most informed choices before you proceed.
  • If needed, involve the experts – investment bankers, tax advisors and attorneys to help you through this phase but never go an inch without being as diligent about your exits as possible. The entire sale can go through without any snafus by simply doing your due diligence, and making sure that you’ve sorted through your company financials. Make sure all taxes are filed, that there are no outstandings and that you’ve cleared any hurdles that may hamper the deal from falling through.


Communication is the key

  • Having a proper communication strategy in place when preparing for an acquisition says a lot about a company and its management and leadership. You will most likely have to deal with the media and several stakeholders, so make sure you gear up. This convinces your employees and other key stakeholders of the fact that you are attentive to the business’ needs, as well as theirs. Always focus on creating value with your stakeholders. Acquisitions are a time of upheaval for everyone involved, and with their faith and trust at stake, there is absolutely no room to falter.
  • Communicate transparently and effectively throughout the entire process of exits. Put yourself in the shoes of your workforce: a good portion of the workforce is entering what is likely previously unchartered territory. An effective communication plan can do a world of good in assuaging doubt, distrust and employee concerns. As much as it is prudent to work with your HR team to come up with a good communication strategy, along with a timeline of what needs to be conveyed to whom, and at what time, a lot depends on how your PR handles the external bit. Remember that this is a big chunk of change management, and as much as it is a function of leadership, it needs to happen in a top-down manner.


Account for your Human Capital

  • Never forget what makes companies great – its talent. Make sure you also study the culture of the company you plan to acquire to make sure the workforce is a good cultural fit. Arm yourself with a change timeline and a transition plan, while keeping in mind the new workforce you are inheriting. If possible, even take time out to get to know the workforce of the company.
  • During an exit, companies and their management often tend to focus so much on the legal and financial details of the acquisition deal, that this bit is often ignored. If you are retaining some share of the company, you may want to restructure your teams, so that you don’t end up losing the best and brightest of your talent, in case you plan new entrepreneurial forays.

In summary, always remember that your people are the most important part of these deals. It is imperative to ensure that the entire transition of the deal is smooth sailing for both your people and your company, so that the brand continues to be associated with the same high standards of quality that it always commanded.

[The author of this post, Bhavin Turakhia is the co-founder and CEO of Directi.]