Business growth by acquiring another business is set to become more popular and prevalent as the UK moves (gradually) away from one of the deepest economic recessions in our history. The potential business benefits are obvious to many of us and include new revenue streams, scale efficiencies, stronger market presence and an expansion of your customer / client base.
But beware some common pitfalls and the phrase “look before your leap” should be uppermost in your mind. The Corpex Group offers six suggestions to help you make a successful business acquisition.
1. Establish a robust pre-acquisition strategy
Know your purpose for considering a potential acquisition. You need a well thought out and clear rationale for what can become a time consuming and costly exercise. It is better not to buy than acquire the wrong company. Research potential target organisations and do not limit your target list to those companies that are for sale or “on the market”.
2. Nothing ventured, nothing gained
Do not make assumptions such as “they are too big for us!” or “they would never sell”. Be bold; remember it costs you nothing to approach a business organisation. Approaching is simple – track down the key decision maker, often an owner, the Chairman or the CEO – and drop them a line. Nothing ventured, nothing gained. Remember to think beyond your direct competitors – you should seek out and consider complimentary businesses that could potentially add strategic value e.g. moving into new markets, gaining an excellent supply chain or acquiring new people, products or systems.
3. Focus on strategic value rather than your funding budget
Do not start with how much funding you think you can raise and direct your forward moves as a result. Instead, focus on the potential value added to your business by making the acquisition and leave the question of “can we afford it?” (important though it will become), to later. Do not be tempted by “bargain targets” – a wrong acquisition, even at a bargain price, is still a wrong acquisition. When you return to the funding question, do remember there are many ways and methods of funding an acquisition such as balance sheet cash accruals, earn-outs, shares and share options.
4. Invest time and money on due diligence
Due diligence is not the place or time to cut corners or try to save money. Comprehensive due diligence is an absolute must for any business acquisition. It is the only way to assess if what you are proposing to buy is what has been described to you. Let the buyer beware! Consider outsourcing these tasks to specialists e.g. lawyers or an organisation such as The Corpex Group to conduct a structured assessment of the Leadership Team – individually and collectively.
5. Recognise that change will happen
An acquisition can take between 9 and 18 months from conception to completion, and change will happen during this process. Attitudes of key decision makers can, and often do, change – for better or worse. Target companies engaged in acquisition talks often “drift” i.e. profits or customers can decline whilst senior management take their eye off the ball. Key staff or supplier contracts may be lost. Stay closely tuned to such changes and remember you have choices. You can walk away, carry on as planned or revise the purchase price in light of such changes.
6. Establish a realistic post-acquisition strategy
Do understand that as “new owners” you may not be universally welcomed by staff, customers or suppliers involved with the acquired business. Have a realistic plan of action including communication and integration to quickly win the hearts and minds of all concerned. Combat post acquisition tension and uncertainty with honest, clear and realistic communication plans.