There's a higher probability of acquisitions going south than going north, says ID Images President and CEO Jeffrey Fielkow. So, having good plans in place up front is critical. For example, when looking at buying a company and then building on with platform companies, it's all about technology and data, and more importantly, knowing what's being acquired.
"To fly blind when we do an acquisition is the last thing we want to do," Fielkow told attendees at the Dallas Smart Business Dealmakers Conference. "And so, we need partners that provide data and security right out of the gate so we can make sure that we have seamless data visibility on day one, even though systems aren't integrated."
There are tools, he says, that allows the company's third-party partners to link everything together on day one. So, even though systems are different, visibility to the data is cohesive.
Another issue can be customer confusion. When acquiring a company, if the customer has a relationship with both entities, those things need to be hammered out.
It's also important that the acquiring company is ready to move fast, which means decisions need to be made quickly and the internal team needs to be ready to catch the pieces — finance, supply chain, sales, operations — and make sure that's cohesive inside the company.
"And that's not easy to do," Fielkow says. "If you leave it to chance, the chances are it's not going to work. So, it's pushing down very hard and focusing on daily meetings and metrics."
Also, he says it's important not to mess up the business.
"We buy good companies. We don't buy turnarounds," he says. "And we don't want to take what we purchase and make it a turnaround. And so, making sure we have put a lot of effort on the core metrics, not many, but the core metrics that drive that business, and make sure we're pushing down on the pedal."
Also critical are people. Because his company buys lifestyle companies, employees that work there typically weren't seeking to be part of a bigger company — they like the intimacy of a private company. So, cultural misalignment can be a critical factor. That makes having a plan for taking care of employees from the first day through the first 100 and beyond to make sure that there aren't any cultural misalignment issues.
Further, he says every employee takes the news of an acquisition differently. That's why the post-deal communication strategy is important.
"What we found works the best is on day one, we bring in the entire management team, and have one on one, and then functional, and then team meetings with the employees we're acquiring," Fielkow says. "Because it is frightening as all hell. As excited as we are, that's how scared they are. And what we find is even a day, like if you go on day two, those 24 hours create more dark thoughts than positive thoughts. And everybody's really worried about, are they closing this one down? Is my job lost? So, being completely transparent and being compassionate and trying to explain that we know how it feels — we don't know how you feel, but we know how it feels to go through the process. And then we also try to link the leaders of the company with others that we've acquired so they can have a buddy system to say it is not that bad, or it is horrible — I don't know what they say, but as long as they stay, that works."
For sellers, he says there's a lot that can be done to add value ahead of a transaction. One issue to look for an address are areas of concentrated risk. For instance, if the percentage represented by a company's top 10 customers is too high, a company should look to diversify its customer base. There can also be a concentrated risk of employees — for example, if the business is predicated on the founder or the founder's family. There can also be risk in processes if much of the company's knowledge is built within the know how of the people but not written down.
Organic growth can also be a critical element, and showing good investments that have paid off helps. It's also important to have a strong solid data warehouse and a great story to tell.
"When you're going to exit, make sure you can really tell your story, and why it's going to be more successful and valuable in somebody else's hands."
