5 Tips to Consider When Acquiring Another Business

Embarking on acquiring another business like Swoone, which we bought in 2020, was a significant milestone for La Lune! It was a step towards growth and expansion, yet it came with its share of precious lessons. Reflecting on the process today as we roll into 2024, here are 5 tips to consider when acquiring another company.

Mistakes Were Made: 5 Tips to Consider When Acquiring Another Company

1. Trusting Instincts and Timely Integration:

One of the initial missteps of acquiring another business was not heeding our instincts to merge the companies immediately post-acquisition. Despite similar products and services, the differing client bases and brand values led us to believe in a two-year transition period.

The Lesson: Trusting our gut and integrating sooner would have aligned our operations and values more seamlessly and quickly. In an asset-only buyout (where no employees come along for the ride), we feel it’s best to merge things as quickly as possible.

2. Deeper Due Diligence:

While our due diligence seemed thorough, we missed a few crucial aspects when acquiring another business: understanding the client dynamics, dealing with social media platforms, and former employees.

Client Dynamics

Some clients that booked through Swoone didn’t match the brand values or have the same expectations we carry over at La Lune, so for the first time in a decade, we had a handful of unhappy clients in those two years. They all got resolved with mostly happy endings, but the roads were difficult, and that’s not how La Lune operates its core business. We’ve always valued customers at 110%, which is why we’ve succeeded. In hindsight, all of it would’ve been fixed by merging sooner, and once that realization came to place, we quickly merged things over a couple of months.

Social Media

Unfortunately, we faced challenges due to Meta’s unwillingness to help us. Despite finally getting to talk to someone after months, merging Facebook and Instagram proved impossible, resulting in a significant loss of value in the social media acquisition since we had to delete both Meta accounts for Swoone. However, Pinterest proved to be an exception and provided a workaround that worked out great.

On a personal note, I’m super frustrated and completely triggered by Meta’s approach to customer service. They refused to merge our accounts due to a missing 90-cent ad purchase receipt from ten years ago. Even after they had taken our social security numbers, state IDs, business information, legal documents from the acquisition, and everything under the sun to confirm our identity. Not only did I feel like they robbed me of personal data, but they also failed to help us with something incredibly insignificant as a roadblock.

Former Employees

There was also a single former employee who took many clients with them, even if that wasn’t done on purpose; that employee went on to form a new design company and took that income with them.

The employee was let go BEFORE the acquisition, so they couldn’t be a part of our contract that stipulated a short-term non-compete clause.

The whole situation was known when we bought the company, but the ramifications remain as we still lose old Swoone clients to that employee today. I get it when someone prefers someone they’ve loved and already been working with, but it ended up being a much greater loss than I expected had I done more research.

The Lesson: Extensive research into existing client relationships, employees, expectations, and better pre-emptive discussions with merging social media accounts before purchase is wise. In other words, do your due diligence thoroughly and never trust a social media network to help you.

3. Valuation Errors and Methodology:

Relying on the Discounted Cash Flow (DCF) method seemed prudent, but it led us to overvalue the acquisition. Realizing The Net Asset Method might have provided a more accurate valuation was a pivotal lesson as we took losses on some of the assets due to due diligence, client loss, and losing out on social media accounts. All should’ve been more considered in the due diligence period.

The Lesson: Exploring multiple valuation methodologies is crucial to avoid overestimating or underestimating the company’s worth and considering that those assets may not hold value after the acquisition.

4. Adaptation During Challenges:

The unforeseen upheaval brought by the COVID-19 pandemic exposed a vulnerability. While Swoone soared, La Lune struggled for reasons that are still unknown. This divergence highlighted the need for diversification, which we’re doing today. Still, sometimes, we forget that website designers are building on the backs of others.

The Lesson: Adapting to unforeseen challenges and diversifying our portfolio became imperative for resilience and growth.

5. Seeking Expertise in Acquisitions:

Despite their expertise in their respective fields, relying solely on our legal counsel and CPA proved insufficient in the complex landscape of acquiring another business. The absence of direct acquisition experience left us navigating uncharted seas.

The Lesson: Having an expert specializing in company acquisitions on board is invaluable for a smoother transition. We could’ve avoided some of our pitfalls by going the extra mile with an expert.

Though challenging, these mistakes have been instrumental in shaping our approach to La Lune’s future, and if I’m being honest, despite the lessons learned, had we not bought the company when and how we did at that exact moment, La Lune may not have been around today. Covid hit us extremely hard, so it was a gift that the opportunity came, and we’re extremely happy with the outcome. But most certainly, we’ve learned valuable lessons to carry on with.

I hope that sharing these lessons will help you on your growth journey. Stay tuned as we navigate these lessons and embark on new ventures armed with newfound insights and a commitment to continuous improvement.

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