I have been the lead or second on purchasing three companies that we wanted to integrate into our operations. In one case, the owner was retiring and put out feelers, in the other two, they were in markets that we wanted to enter and purchasing was evaluated against building the market ourselves. All three have been successful so far.
In all cases, I interviewed every staff member, contacted their top ten clients and we did a full review of financials going back several years to come up with a valuation.
The client/staff interviews are important and give you a real sense of the viability of the company. We also reviewed every single contract that the company had signed to cover any outstanding obligations and met the landlord if any leases were coming due.
The risk to this process is big on the sellers end though. They have to tell their staff and clients that selling the company is a good idea so if the deal falls apart it could be hard to walk that back. There is also a tipping point where the deal has a ton of momentum but terms are not yet finalized and it is a good idea to build a gut check into the process to avoid being blinded by the prospect of closing.
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