Achieving Scale Through Acquisition

By Melissa L. Bradley

The recent acquisition of Sundial by Unilever speaks to the recognition of large, traditional consumer brands recognizing the power of the new majority. Changing national demographics, coupled with a successful formula for profits, Unilever saw great potential in the Liberian founder and his family. In 2017 M&A activity exceeded 50,000 deals as companies see acquisition as an easier pathway to new markets, new customers and most importantly new profits. For an increasing number of organizations, the answer is to buy rather than to build.

While acquisitions are common amongst big brands and big business, it is rare that you hear of an emerging entrepreneur acquiring a business, and almost non-existent to see women of color buying businesses. Acquisitions are certainly a quicker way to scale, but often require a significant amount of capital and sector expertise.

I am pleased to present two African American women in DC who acquired their successful businesses and leveraged their sector expertise and social capital to create bigger companies than if they had started from scratch.

Meet Lisa Deane, CEO of Federal Contractors, Inc. She was an employee of Federal and “actually helped establish Federal even though I did not have any ownership in it. We had discussed me purchasing 51% of the company for years; however, after further investigation it appeared that taking 100% ownership would position Federal to become eligible for several set aside programs that could help us in government contracting.” Lisa recognized the market opportunity for the business and the value that she provided the company. She purchased 100% of the stock from the owner through a stock purchase agreement that was to be paid in full over a five (5) year period. The purchase was completed in May 2015 and took approximately two (2) months. “I had worked for the company since its inception and for the Owner for approximately 20 years.”

Unlike many acquisition targets, Lisa was on the inside. She was a significant contributing factor to the company from its beginning and saw even great opportunities than the founder. Convinced that she could lead this company to great visibility and profitability, she decided to buy the company as opposed to just being a line on the capitalization table. “We had an evaluation of the company done. The company attorney was involved, and I had a trusted advisor that I worked with. I believe it was the right decision.” Today Lisa has expanded the company into the federal space and has increased revenue more than expected when she was a staff person.

Meet Kimberly Moore, CEO of Go Together, Inc. She too decided that in a crowded and emerging space it was better to acquire than build. “I realized during our beta that the key to our success was building trust with our ultimate customer (parents) and our opportunity to build a national brand. With the acquisition of CarpooltoSchool, I decided not to convert the beta to a product in the market giving us the opportunity to scale faster.” And Kimberly was correct. While the acquisition process took three months, she was able to grow the business and brand 46% in the first year.

Unlike Lisa her introduction to the company was through google search and email. “I was looking for software that would optimize the beta product. I reached out to the founder via email at the exact time she was selling her business. She talked with several other startups but believed she wanted to sell to a founder who with a shared vision of building trust with schools and making life easier for parents not just a market play.” This acquisition proved to be a game changer for Kimberly and her company.

Acquisitions are hard, time consuming and can be expensive. While acquisition is a viable path, it is often less traveled due to the complexities of the right time, right fit and right prices. Lisa Deane notes, “I’ve learned a great number of lessons. The most important is not accounting for transition costs. Although it’s not a startup there were a number of items that we needed to change to work more efficiently and to establish ourselves apart from the previous owners.” Kimberly recalls that she needed “help identifying a funder, figuring the offer and deal structure, legal review of agreement, and due diligence guidance.” While acquisitions can increase market share sooner than expected, there is also a significant outlay of cash, patience and trust — all costs that are irreplaceable.

Both entrepreneurs recommend that CEOs considering an acquisition should be clear what the value of the acquisition will mean for the current brand/business, ask around and seek references and users, and perform diligence and a realistic assessment of what you expect as a result of the acquisition.

Key lessons for each female entrepreneur include insuring mission alignment between your business idea and the current business; clarity of vision on how the potential acquisition can mitigate risks of a startup and accelerate growth; and access to critical advisors with business, finance and sector expertise to help assess value, risks and profit potential.

Checklist for Entrepreneurs:

• Have an evaluation performed by an independent company and review it in detail
• Evaluate why you are acquiring the company and determine will it provide immediate value, or will you have to invest resources to get it to that point and if so budget for those resources
• Ask a few mentors, advisors, customers if they’ve heard of the product and their thoughts.
• Have a good attorney, someone with experience brokering deals, CPA for tax implications
• Determine what impact will be hand on employees, contractors, or any labor at both firms
• Have a non-disclosure and non-compete clause
• Negotiate a reasonable transition period where the CEO or other key staff will be available to do an effective knowledge transfer

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Project 500™ is a business development program to help diverse businesses scale in terms of revenue, staff and investment retained. Our goal is to recruit and retain up to 500 businesses to receive hands on training, capacity building, mentoring and networking to advance the economic success of their businesses and their communities.