I’ve found the current OPEN MINDS Circle series about economies of scale and collaborations very useful – in particular, How Big Is Big Enough? all members and Where Does ‘Big’ (& ‘Collaboration’) Fit In Planning? all members. My interest is a practical one – I’ve been working with executive teams who are on the hunt for other organizations that they can buy in order to grow quickly.
What I’ve learned through my hands-on work in the field is that there is a process that can speed your search for another organization that is a “good fit” for you. This process is built on the overarching principles for good collaboration that Monica Oss wrote about earlier this week (see 10 Keys To Successful Collaboration all members) – but includes some very specific tactical steps.
If you’re thinking about acquisition as a way to achieve operating scale, I would recommend incorporating these eight steps into your process.
Confirm your strategic objectives for an acquisition – This sounds basic, but make sure everyone on your team (your board, your executives, your consultants) are on the same page about why you need an acquisition. There are many possible reasons – a new service line, a new payer, a different geographic market, more volume for same service line, etc. But agreement among your team about the drivers behind your acquisition plan will keep you from wasting time and help you sort through prospective organizations at the end of the process.
Set required and desired parameters for the acquisition – While step one is the strategic frame for the acquisition, step two demands specifics. What is the size, service lines, profitability, geographic service area, customer markets, operational competencies, and existing contracts of the target organizations that you would consider acquiring? How much cash do you have – for purchase, for the transaction, and for operating cost supports? What characteristics would make an organization a ‘no go’ from your perspective?
Identify the acquisition candidates – Using the parameters that you establish, now is the time for research. Identify all the organizations that meet those parameters (e.g., outpatient autism service provider organizations in New York with more than $5 million in revenue but less than $25 million in revenue). Once you have your list, approach these organizations (possibly through a third party) with a statement of intent and solicit possible interest. At best, when you’re casting this broad net, you will have a 2-4% response rate.
Create profiles and select candidates for consideration – Once you have a list of interested candidates (likely only a handful), more research is next. Conduct preliminary research on the candidates and build a high-level profile. Your executive team should review these to come up with the “short list” for consideration. You will want to sign non-disclosure agreements with these organizations on the ‘short list’ to start the process of sharing more detailed information.
Conduct meetings to evaluate the acquisition candidates – When you have a list of candidate organizations, the next step is “dating.” It’s time to meet their teams, tour their operations, discuss their financials and strategic plans, and get a sense of organizational operations and culture.
Prioritize the finalists – From these meetings, your team should reconvene and sort through the findings of the meetings with each candidate, and what you learned. This meeting should result in a prioritization of the finalists – and likely the elimination of some candidates.
Start discussions and conduct due diligence – For the leading candidates, the next step is to start a discussion about possible acquisition terms, and conduct due diligence. This process starts with a letter of intent that sketches out high-level terms of agreement. This should be concurrent with a due diligence process (be sure to construct a list of specific items for review and/or validation before any acquisition).
Acquisition implementation with planning for on-going combined operations – If you think the first seven steps sounded intense, the fun and excitement is only beginning. Once you have agreed to acquire an organization, you need a plan to actually get the job done. There is the plan for ‘doing the deal’. Then there is the on-going operations — governance, strategic plan, organizational structure, executive team, financial reporting, operations planning, and marketing planning. Each requires step-by-step plans and someone (or teams) to manage them.
While this approach may sound a bit intense, the process is one that increases the likelihood of success in the long run. For more, check out this related resource from the OPEN MINDS Industry Library – Non-Profit Executives Engaging For-Profits in Mergers and Acquisitions: Fundamental For Non-Profits as Sellers in a Consolidating Market.
For another free resource, see: Should Your Organization Explore Mergers & Acquisitions? all members