Thinking about acquiring a rival business, or one that could complement your own? Here are the basic rules of engagement.
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Making an acquisition is a good way of getting a head start in a new market that you believe would be tough to make headway with in your current guise for any reason. Or if you are looking to add product or service lines.
For example, if your business is operating purely in the private sector and you want to move into the public sector, the right acquisition will enable you to leapfrog in, bypassing the necessary qualifying periods and gaining instant credibility.
If you want to accelerate the growth of your business, perhaps so that you in turn can sell it, then you can achieve this is in a fraction of the time that organic growth would take.
It is worth noting that any company that is looking to acquire you will be less interested in the money you have borrowed to make your acquisitions and will be focused on your revenue streams and underlying income that will both repay the loan and generate more profits for the acquirer in the years ahead
What should I be looking for?
There are three areas you should consider carefully: strategic; financial and operational.
Firstly from a strategic point of view you are looking for synergies and whether, if successful, the acquisition will get you where you want to be in terms of markets, market share and skill sets. Secondly from a financial perspective you are looking for what you believe the potential to be versus how much it will cost.
Thirdly there are operational considerations around issue such as locations, the skill and age of the management teams coming in and will the culture of this new business fit with what I already have?
In layman's terms - is it a good fit?
In simple terms you need to assess what could be achieved by bolting what I am buying together with my existing skills and contacts and then ask if it is bigger than the sum of its parts? Do the opportunities outweigh the risks?
How important is a good cultural fit?
A good cultural fit is very important so look at the way the company operates. You need to recognise that its culture and style likely underpins its success and respect that. However if they operate in a polar opposite way to your existing business then it probably won’t work.
For example if you require your teams to work shifts and be mainly office based and your target acquisition works Monday to Friday from home – it might be time to walk away!
How can I make the process simpler?
Probably the simplest way is to engage with a merger and acquisitions specialist that operates in the sector. On the upside they will be introducing you to businesses that are ready to sell and have a realistic view of what their business is worth.
On the downside this is a more expensive way of doing things and you can expect to pay something regardless of the outcome.
One of the most important lessons I have learned is that approaching a business that is not thinking about selling and trying to convince them to do so is often a thankless task. On paper it seems a good idea as there is no other buyer in the running and you can cherry pick from a wider pool.
However my experience is that this has about a 1 in 10 chance of success as opposed to a 60% chance with a business that is actively looking to sell and perhaps has a broker guiding them in a positive manner.
Better to buy from someone who actually wants to sell
This can be for many reasons and we have experienced companies changing their minds after the heads of agreement have been signed, asking an entirely unrealistic price and just changing their minds as the senior team is not quite ready to retire or just sell up.
Whatever the reason you can be left thousands of pounds out of pocket and having to start the process again.
What is the most important piece of advice you can give?
Always surround yourself with a group of trusted advisors who understand your culture and your ambitions. This might be an accountant, legal advisor or bank representative. We try and keep the same team together for all our acquisitions as we believe we get the best value this way.