July 6th, 2017
By: Deanna Dydynski, marketing & public relations manager
The funeral industry, while it is incredibly unique in practice, the principals of business are no different than any other. In every industry, as businesses grow, they expand, acquire and merge. The funeral industry is no stranger to an acquisition or merger. Does the nation’s largest funeral home operator, Service Corporation International (SCI) ring a bell or the Matthews-Aurora acquisition of 2015? Whether a business is attempting to grow or survive, the development of strategic alliances and consolidation is key.
Mergers and acquisitions can be great for business as they can: create diversification of products and service offerings, increase capacity, create a larger market share, eliminate competition or improve financing and cost efficiencies by conjoining operations. As business owners, you know all too well there can be risks with any major decision. Forbes’s, Frank Vermeulen suggests that 70 percent of acquisitions and merger deals fail, whether due to clashes in culture, potential increases in debt or apprehension among employees during consolidation, there is no guarantee for success.
If you are debating on buying, selling or merging, there are several considerations you must take into account. A good friend and acquisitions lawyer of mine told me, “when pursuing an acquisition or merger, you want to get the dog but you want to make sure you get the dog without the fleas.” Meaning, if you are wanting to expand or join with a business you want to be sure you get the right one, as you do not want any unexpected surprises. A business effort such as a merger or acquisition is just that, an effort and before moving forward you will have to complete a series of due diligence and gather an extensive amount of information. After all would you really buy or sell anything without doing your research?
Let’s begin with the basics, and clarify the difference between a merger and an acquisition. While they are often uttered in the same sentence, they have slight differentiating factors. An acquisition occurs when one company purchases the business of another entity and clearly establishes itself as the new owner. A merger, refers to a mutual consolidation of two or more businesses to form a new enterprise including the integration of operations, and the sharing of control and profits. Once you have a clear understanding of how acquisitions differentiate from mergers you can evaluate how either may affect your business.
While there is an almost insurmountable amount of time, effort and research that goes into such a great business deal, here are the 7 things you need to consider before pursuing an acquisition or merger:
This is an obvious one, investigating further into the company’s financial history, metrics and targeted projections is crucial. You will want to gather financial records such as the company’s annual, quarterly and monthly financial statements for the last three to five years, as this will give you a better understanding of the performance and financial condition. Additionally, information such as any aging accounts receivables, tax returns, depreciation schedules, debt payoffs or if the EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) has been appropriately calculated. Let’s be honest, money is what keeps a business going and whether you are looking to buy, sell, or merge, financial matters are going to be a top priority
Understanding the company’s current and targeted customer base will be key in order to maintain and recognize growth opportunities. If you are planning to acquire another business, keeping the prior company’s customer base, and keeping them happy, should be a priority. As a potential buyer you will want to know the top customers, any specific terms created, customer backlog or if there will be any issues retaining customers following an acquisition. On the flip side if you are planning to sell, you, will want to see that your customers fall into good hands. As any good business owner knows, a loyal customer base is important and if you are wanting to expand then you will make an effort to understand the ins and outs of your new potential clientele.
3. Employees and Management
You will have serious decisions to make based on the current employee base of the company you are planning to acquire or merge with. Gathering information on appropriate treatment of personal, employment and consulting agreements, incentive arrangements, bonus programs and compliance obligations will be points of focus when moving forward in a merge or acquisition. Aside from having happy customers, a happy staff is just as important, as your employees are the foundation of your business.
Before making any significant investment you need a clear overview on litigation. Necessary legal documentation you will want to uncover may include any filed, pending or settled litigation, threatened claims, consent decrees, injunctions, attorneys letters, arbitration matters or any government proceedings against the company. As you are funeral directors and most likely not experts on law, having a lawyer who specializes in mergers and acquisitions will be your best asset. Merging, selling or acquiring requires an extensive amount of legal documentation and involvement so you should be sure to engross yourself in any legal proceedings as much as possible.
If you are wanting to merge with or acquire another funeral home, you are going to need a legitimate outline of all physical, technological and intellectual properties and confirm appropriate steps have been taken to protect these. Intellectual properties may include confidentiality and invention agreements. Is the seller infringing on these rights or is a third party infringing on them? Does the funeral home you want to acquire have any copyrighted products or materials? What about crematory facilities, caskets, hearses, rental properties or additional real estate? If you are selling your business, the buyer is going to be extremely interested in the quality of your properties, so be prepared to encounter an extensive list of due diligence inquiries.
Knowing the competitive landscape for a business you are going to acquire or merge with is almost as important as knowing the business itself. Understanding the competitive environment a business operates in is crucial, as every marketplace is different. You would analyze another businesses’ competition just the same as you would analyze your own competitive market. Uncovering the different service offerings, pricing structures, advantages, history and customer base are all key pieces of information you will want to gather about the potential businesses’ competition.
Determining how to integrate a new company into an existing infrastructure and make a brand transition smooth is a difficult task. While marketing and sales initiatives of another company may not be a top priority during the process of a merger or acquisition, this information will be key for future endeavors. Understanding the target company’s marketing strategies and arrangements will help uncover branding and growth opportunities. Marketing includes sales, promotions, communications and public relations, ultimately making up a large part of any business. So why would you not want to have a foundation of the existing companies marketing information? Did the funeral home conduct a survey and have valuable marketing information for the target area demographic? Do you have a list of all the stakeholders and a plan to properly communicate the transition? What about sales representatives, marketing literature, GPL’s and catalogs? These are all materials that will need to be gathered and assessed before moving forward with an acquisition or merger.
While these are just a few of the necessary elements of due diligence in moving forward with an acquisition or merger, ultimately, you are going to need a qualified team to assist you in getting “the dog without the fleas.”