Things to consider for an effective contract & acquisition strategy
No matter what industry you are operating in, keeping proper contracts is essential to protect your business. You can make informed decisions about your agreements, such as which agreement to renew or terminate. Most businesses are built on solid relationships with vendors, suppliers, regulatory agencies and employees. Acquisition and contract management (ACM) creates the framework for budgets, partnerships, timelines, etc., forming the basis for service/product agreements.
The ACM professionals can help businesses succeed by analysing relevant data and the latest information. They address the industry’s challenges like collapsing supply chains or contract breaches.
The process & challenges of ACM
The ACM process is when a company procures goods or services involving potential suppliers, negotiating contracts, and managing them. It aims to procure goods at the best possible price and quality. Many challenges can arise during the process.
One challenge is ensuring all stakeholders are consulted and involved during the process. Another challenge is that the acquisition objectives are set clearly that are achievable. Managing risks throughout the process and ensuring that contracts are well-written and actionable is also essential.
10 benefits your business can get from ACM
- Improves a struggling business
- Diversify the business
- Enhance market power
- Ensure access to more capital
- Increase your competitiveness
- Reduce production costs
- Allows companies to meet the stakeholder’s expectation
- Obtain funds for development
- Access to competent staff with adequate skills
- Reduction of training costs
Key factors to consider for an effective acquisition strategy
- Define your investment thesis
Before getting in touch with any prospect, clearly understand why you are reaching out to them. Check the company’s profile you seek to acquire and identify the company’s size in revenue. Additionally, for effective acquisition management, get the employee details, target geographies, management team, and desired product or service lines. The investment thesis must define what success is and look for the following –
- Revenue objective
- employee retention
- client retention post-transaction
- strategic objectives
- potential acquisition targets
- Create the financial model
Creating a financial model is part of evaluating a potential transaction and pro forma financial statements for the combined entity. Considering the risks, the model must demonstrate how the acquisition will impact the company’s performance as a consolidated partner. The financial model is a fundamental tool to know the potential of acquisition. The financial data of each target must be built in as they are evaluated to understand the risk/reward of each investment properly.
- Be realistic about price and terms.
If the markets have witnessed some tough times, buyers should not expect to get good companies cheap. Many companies come down off recent highs, which is an excellent time to buy. But for a good prospect, be prepared to pay the market rate. There must be reasons that a company is willing to sell for less, which must be avoided.
- Plan integration now
Few acquirers plan for integration of the company post-deal, which includes good planning. Execution is a key determinant of successfully achieving the strategic acquisition. Identify the team in advance to work on an organizational, operational, financial, and technological integration acquisition plan. Acquisitions fail to live up to the objectives as a result of poor integration, planning and execution.
- Thorough due diligence is critical
Reasonable due diligence costs money and takes time. Be willing to spend both adequately to protect your company. The merger must understand what they are buying. Pay for a good quality of earnings report, assessment of HR practices, IP assessments, inventory value and obsolescence, client and vendor diligence, market diligence, environmental diligence, etc.
- Be prepared to move crisply.
Time kills deals. For a productive acquisition management, the buyer should be thorough in the opportunity and move quickly to count them in. If they are a good fit and pass the diligence, make the transaction and close it. Otherwise, cross them out and move on; save your time and theirs.
Key elements of contract management strategies
- automate your contract management processes
- track obligation fulfilment
- priorities contract reviews
- seek an experienced ACM software provider
- contracts must not belong to only legal
The Bottom Line
If you want to see how Nomadux can put the right contract management strategies in place for your business, get in touch today. Outsource your team for successful acquisition and contract management.
