Business buyers should make sure ‘special sauce’ comes with the deal

Take a hypothetical situation. There’s a longtime family restaurant and its owners are looking to retire. Another restaurant owner wants to take over the business and bring in its own brand of food. 

However, the restaurant up for sale has always been known for its pasta sauce and people come from far and wide just for that sauce. 

When making an offer for the restaurant, the new owner stipulates that the secret recipe for the pasta sauce comes with the deal, so that the newly revamped restaurant can still attract the old regulars who loved it. 

Dealing mostly with companies with earnings of more than $2 million per year, RKL doesn’t deal with a lot of recipe requests in mergers and acquisitions. 

But Bryan Redding, practice leader for RKL’s transaction advisory service group, said every business has its own “secret sauce” of what has made it successful and popular with clients, and any business looking to acquire another firm should make sure that what they’re buying contains all of the ingredients that made the business their buying a success. 

Whether it’s a private equity group or a competing company making a strategic acquisition, Redding said companies need to make sure they do their due diligence ensuring that they are buying all of the components that made the business worth acquiring. 

It’s not just the bricks and mortar building or the goods that are being sold that make for a profitable business, it’s the intellectual property, processes and even a company’s culture that helps it succeed. 

Any merger or acquisition should make sure that those things remain when they take the reins. 

“They have a special way of doing things either with their products or their customers that should come with the business,” Redding said. 

A big part of that is the staff. Many agreements stipulate that key member of staff –usually leadership – will transition to the new team, bringing their knowledge and experience with them. 

But what about the rest of the team? 

“What’s going to happen to my staff,” he said is a question he gets often. In family business situations an owner often becomes very close with employees and wants to make sure they are being taken care of. 

Redding said while there is often a “handshake agreement” that general staff will be kept on, it’s not usually formalized in an acquisition agreement. 

Often, he said the acquiring business will want to keep staff on because they are already trained and have built relationships with clients over the years. There’s a great value in that.