For many owners, the idea of acquiring another company arrives gradually. A competitor's founder mentions retirement. A supplier struggles. A company in a neighbouring region looks like a natural fit. Before long, the question becomes concrete: should we buy?
A well-chosen acquisition can add customers, capabilities and scale far faster than organic growth. A poorly chosen or poorly integrated one can absorb management attention for years. The difference usually lies in the discipline of the process.
Step 1: Start with your strategy, not the target
The most common mistake in a first acquisition is starting with an available company and working backwards to a rationale. Begin instead with your own plan:
- Where do you want the company to be in five years?
- Which gaps would be faster or cheaper to fill by buying than by building?
- What kind of company would fill those gaps: a product, a customer base, a team, a geography, capacity?
Writing this down creates a filter for every opportunity that follows.
Step 2: Define your criteria
Translate the strategy into concrete criteria, such as:
- Size range by revenue or employees
- Location
- Products, services or capabilities
- Customer types
- Ownership situation, for example founder approaching succession
- Cultural fit and management depth
- Financial characteristics, such as profitability and capital needs
Clear criteria save time and keep emotion out of early decisions.
Step 3: Assess your own readiness
Before acquiring, be honest about your own company:
- Do you have the management capacity to run an integration while keeping the core business on track?
- Is your reporting strong enough to absorb another company's numbers?
- Do you have, or can you raise, the capital?
- Are your systems and processes documented enough to extend to a new business?
If the answer to several of these is no, strengthening your own foundation may be the first step.
Step 4: Identify and approach targets
Good acquisition targets are often not formally for sale. A thoughtful approach, typically a discreet conversation with the owner about their long-term plans, often opens doors that a public process would not. Patience matters; relationships can take time to mature.
Step 5: Value the business carefully
Value the target on its standalone performance first. Then consider what the combination makes possible. Be cautious about paying the seller for synergies that only you will create and that depend on your execution. Model a cautious case in which integration takes longer and synergies are smaller.
Step 6: Due diligence
Due diligence confirms what you think you are buying. Typical areas include financial, tax, legal, commercial, operational and people topics. For a first acquisition, it is worth paying particular attention to:
- Customer relationships and whether they depend on the selling owner
- Key employees and their likelihood to stay
- Quality of earnings and working capital
- Contracts with change-of-control clauses
- Systems and data
Specialist advisers should support the financial, tax and legal work.
Step 7: Structure and finance
Consider how to pay: cash, debt, vendor financing, earn-outs, or shares in the combined company. Each affects risk, alignment and the seller's motivation after closing. A seller who retains some financial interest in the outcome is often more engaged during the transition.
Step 8: Plan integration before closing
Decide in advance what will change and what will not. Which systems will be combined? Who leads what? How will customers be informed? What will happen on the first day? An integration plan that exists before closing reduces uncertainty for everyone.
Step 9: Communicate with care
Employees on both sides will have questions. Clear, honest communication, explaining why the companies are coming together and what it means for them, reduces anxiety and staff turnover.
Step 10: Review and learn
After the first year, review the acquisition honestly. What went as planned? What took longer? What would you do differently? The lessons from a first acquisition are the foundation for any that follow.
Common first-acquisition mistakes
- Falling in love with the target
- Underestimating integration effort
- Overpaying for synergies
- Neglecting the core business
- Assuming the selling owner's relationships transfer automatically
Knowing when to say no
One of the most valuable skills in acquisitions is walking away. Most opportunities an owner reviews will not meet the criteria, and some that look attractive at first will reveal problems during due diligence. Saying no to the wrong deal protects the capacity, capital and focus needed for the right one. Many experienced acquirers describe their discipline less in terms of the deals they did than the ones they declined.
How LXN works with owners
We help owners define acquisition strategies, find and approach targets discreetly, negotiate and structure deals, and, crucially, integrate them through hands-on operating work. Where it fits, we can also invest our own capital alongside the owner to fund the acquisition.
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