Acquisitions: The Buyer’s Corporate Culture Can Impact a Seller’s Price

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corporateA recent pre acquisition due diligence process raised a fascinating question for the leaders of both entities.

Like most due diligence processes, the leaders of each business began with valuation formulas and a series of questions. If the industry multiplier for acquisitions is currently averaging between 5 and 6, would 5.5 X net profit be an affordable purchase price?  If so, will the seller accept payment over time to reduce strain on the buyer’s cash? Could a lower purchase price be acceptable to the seller if more cash is involved up front? What percentage of the seller’s existing customers should the buyer realistically expect to retain and at what revenue/customer?  What’s the value of the seller’s equipment, inventory and vehicles? How should the seller’s sales pipeline be valued? Which prospective customers might hesitate if a new owner is involved?  Would there be additional costs associated with any differences in geographic areas or target markets/customers?  Which employees are most important? Should anyone be paid a bonus to stay and give the buyer a chance? What additional costs should be anticipated due to employee turnover?  Could the possibility of an acquisition simply invite employees to leave and start their own competing business?

We slowed them both down and asked that they consider if and how the goal of profitable business growth would be served by an acquisition? The answers and values related to the questions listed above are impacted by whether the purchase being considered will eliminate a competitor, increase the buyer’s production/capacity or add complementary products/services to the buyer’s offering.

In this situation, the services provided by the seller’s business require more experience and training. The acquisition would add a desired complementary service to the buyer’s offering.  The people-related questions became the major variable in these pre-acquisition valuations.  The fact that the seller’s business has a collaborative culture and the buyer’s corporate culture is more autocratic became the most important variable.  The employee and customer retention and the projected growth and profitability of the combined entities could be higher IF the buyer is invested in learning how to be a more collaborative leader. They might have to leave the businesses completely separate (even when/if the ownership changes) if the buyer has no intention of changing. And if the collaborative leader (the seller) values keeping a team of people together, a sale may not be possible at any price.

It’s been our experience that the purchase price and long term ROI is adversely impacted when an autocratic buyer is involved. Would acquiring a collaborative business raise, lower or have no impact on the purchase price for you?  What could you do to be more collaborative and be more ready to acquire businesses at more affordable prices and increased ROI?

About Aldonna Ambler:
Known as The Growth Strategist®, Aldonna Ambler built and grew a suite of companies to help midsized B2B companies achieve accelerated growth with sustained profitability® A Certified Speaking Professional (CSP), Ambler has addressed over 2000 audiences and hosted a syndicated online talk show about growth strategies for 9 years. As a growth financing intermediary, Ambler raised over $1 Bil dollars for midsized companies. The winner of over 2 dozen prestigious national and statewide "entrepreneur of the year" awards, Ambler is available to speak about “profitable growth during any economy” and/or serve on the board of a growth-oriented privately-held company.

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