Let's assume the best. You found the perfect company for your first acquisition, you located financing, you maintained continuity and this morning, some time later, you woke up with Acquisition Fever.
If you're like most budding high performers, the "fever" is really an outgrowth of your realization that you'll never achieve another Quantum Leap out of your present company until the day you sell it... until you make an equity transaction. Profits are inching up, revenues are steady, sales are up from last year - and you're bored.
Before mold forms on your elbows, it's time for more Quantum growth. (…)
As you consider a second acquisition, there are some rules of thumb to consider. Your first acquisition should have established or continued a profitable track record - but that's not mandatory. If your first company is struggling for breath, a second company won't pump life back into it automatically. A good idea is to give the first company about three years of operation after your acquisition, so you and your "Cee-pee-a" can make a qualified judgment about its long-term health. Also, during those three years, your first company will have had time to establish a reputation within the business community.
These are all rules of thumb. But... if you find another hot deal and your instincts say yes - go for it!
In your first business no doubt you became a managing owner. In your excitement and enthusiasm, you got in early every day, reviewed receivables, walked through production, checked orders, talked to customers and monitored every figure for signs of profitability. Your employees would look and say, "Here he comes again."
You can't do that with two plants, two stores or even two offices. You have to hire or train another individual- or several- to take over your management duties so you can spend more time kissing frogs for your acquisition. Your second acquisition, in fact, signals the end of your role as a hands-on kind of owner. Otherwise you become your company's worst confusion factor. And worst enemy.
You also want to pay off your short-term debt. You're going to need plenty of short-term cash during the second acquisition - and this time it should come from revenues of the first acquisition, not your own wallet. So pay down the operating line. And do it all over again. (…)
Never apply short-term solutions to long-term problems. (...) Never use operating funds to make the equity contribution in a second leveraged buyout. Don't use short-term borrowing to make a long-term purchase.
Look for a second company that complements the operations of your first. (…) You will have learned volumes from your first acquisition which you can apply to your second. At the same time, you'll be regarded in a different light by bankers, lawyers and owners of potential acquisition targets. Your first time around, you were regarded as a novice, and given slack and consideration for your lack of experience. This time, you may be regarded as a greedy capitalist, reaching out to grab other men's dreams to extend your own. You may be met with suspicion, and every word you say or write will be examined for content and implied meaning. Your best defense is calm reassurance of your intent, and the determination to remain fair to all parties.
Once you've done a successful acquisition or two, an amazing thing will occur. Deals will start to seek you out. Accountants, lawyers, owners and brokers will bring you deals because you're a proven player.
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