Acquisitions can be seductive due to their attractive tax advantages, market share growth, increase in profitability and heightened public awareness of market dominance.

But any acquisition demands strong financial and emotional investment. The key to success: Don't let this heady, time-consuming process cloud your judgment and leave you cash poor.

To execute a successful growth strategy in today's highly competitive market, an acquisition takes more effort and creativity than ever before. Finding and capitalizing on opportunities is strategically crucial in order to create value that others don't recognize.

The following are some guidelines to successfully work through the acquisition process, which will create a competitive advantage and maximize shareholder value.

First, it's helpful to develop a clear set of objectives and a plan for your business. A business plan can be an invaluable management tool if it is well prepared, reviewed and updated regularly. The plan is essentially a document that conveys a company's prospects and growth potential and thereby "sells" the business to potential backers. These backers include the management team as well as potential lenders, investors and strategic partners.

With your business plan completed, the next step is to identify any firms you would like to acquire. There are two basic approaches: look at industries in which you have business experience; or examine other industries that have growth potential. (You may have to acquire the necessary expertise or technology.)

Once you thoroughly understand the industry you've chosen, you need to consider the size of the business, set a minimum and maximum price range, and, having completed a preliminary financial evaluation, determine how much you can afford to finance.

It's extremely important to perform a detailed financial analysis of the price you are willing to pay. Stick to this price and be prepared to walk away from the negotiations.

Once you have identified a target company and determined that its owners are interested in selling, your financial advisor will help you set up the meeting.

The initial meeting is very important. Keep it small, don't invite an army of advisors to attend; it could intimidate the seller and put a damper on open and honest discussion. Assuming this initial meeting is successful, you will move to the next phase of actually negotiating and completing the transaction. Below are a few of the keys points in any transaction:

- Develop a negotiating strategy. You and the seller need to be flexible and understand which bargaining points are important to win and where compromises can be reached.

- Prepare the letter of intent. The LOI is an agreement by the parties to continue to negotiate in good faith. While usually not legally binding, it can bind the parties psychologically and reduces the possibility that other buyers will make an offer.

- Structure the transaction. Before you can finalize the letter of intent, you will need to know how you want to structure the transaction, taking into account the needs expressed by the seller as well as your requirements as the buyer. The goal is to reach an agreement that is a win/win for both the buyer and seller.

Various "considerations" that can be offered as incentives include cash, stock and contingent payouts.

- Perform due diligence. Up to now, screening of the candidate has been based on public knowledge. The candidate must now be scrutinized in greater depth to determine whether everything has been represented properly. Such due diligence means gathering as much information as possible on the target. Legal due diligence is also necessary by both the buyer and the seller, often requiring an investigation of the company and a legal "audit."

- Review tax and accounting issues. Tax and accounting issues are a major consideration. From a tax standpoint, the best strategy is to minimize the total taxes paid on the transaction, taking into account the seller's taxes as well as the buyer's taxes. By minimizing the combined taxes, value is added to the transaction. The buyer is also concerned with the accounting treatment of the transaction, including such issues as pooling of interest and purchase methods.

- Close the deal. As you near the end of the process closing the deal there are other issues to consider, like modifying projected financial information, preparing the definitive purchase agreement, representations and warranties, and indemnification provisions. Once all issues have been resolved and the financing commitments have been received, the deal is ready to close.

- Post-merger integration. The final step in a successful merger or acquisition is an effective integration plan. The plan should delineate short-term as well as long-term goals and address such areas as human resources, tangible resources, and business processes.

Doing such a deal is very exhilarating, yet stressful. If you are considering entering into this process, it may be helpful to remember what is taught on Wall Street: "At the end of the day, analytical rigor will always win over emotion and ego in deal-making."

Kimberly Valentine is managing director of corporate finance/mergers and acquisitions group for Deloitte & Touche in Costa Mesa. She can be reached at kvalentine@dttus.com.

Entrepreneur's Notebook is a regular column contributed by EC2, The Annenberg Incubator Project, a center for multimedia and electronic communications at the University of Southern California. Contact James Klein at (213) 743-1759 with feedback and topic suggestions.

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