Whether you are contemplating taking the leap into your very first acquisition or have navigated a number of successful mergers in the past, you need to be prepared for what the journey will bring. By making sure you have considered some key points, you can help to make the transition from pre to post transaction a smooth one.
You have identified what you consider to be your perfect target, sounded out the vendor and compiled your business plan, but have you taken the time to step back and give some careful thought to whether it really is “The One” for you?
There are many routes you can take to grow your business by acquisition. You can buy one of your competitors; after all, you know what they do inside and out. On the other hand, have you considered diversifying your offering with a complementary business?
The way you choose will depend in part on the expertise you have available to you and the time that your current management team will have to commit to integrating the businesses and the workforce after the transaction. This needs to be given as much (if not more) attention that the deal itself. An important part of any post-acquisition plan is making sure you have a keen focus (and the time to spend) on developing one culture. Acquisitions that fail to generate the anticipated synergies often do so primarily as a result of a ‘culture clash’ between the two parties.
Whichever route you decide is the best option for your business, you need to look to identify synergies, potentially yielding incremental revenues or cost savings further down the line, in addition to non-financial benefits. An improved culture, enhanced skill-set and the opening of new markets are all feasible benefits of acquisitive growth.
Do you want to acquire the ‘shares’ or merely the ‘trade and assets’ of the business?
An acquisition of shares is the norm in profitable, cash-generative businesses, and is normally the preferred route for the vendor, for tax reasons. A ‘trade and asset’ transaction is often used in a distressed sale situation or where discrete elements of a business are being acquired, leaving the remaining business intact. This type of transaction can be attractive to an acquirer as you may be able to ‘leave behind’ certain elements of the business; nevertheless, the wishes of the vendor will need to be considered.
If you are looking to retain the vendor in a management capacity, acquisition risk can also be reduced via an ‘earn-out’ mechanism, incentivising the vendor to improve the performance of the target, and consequently, your return, whilst passing on their skills and invaluable knowledge of the business, its operations, markets, customers and staff.
The process and stakeholder management
Think carefully about your valuation of the target, particularly if you are looking to retain the vendor as an employee; they will more often than not be incredibly attached to the business and will want to be sure they are passing the result of their hard work and commitment to a safe pair of hands. Make sure that the valuation is realistic and avoid overpaying. You can look to structure an element of consideration as deferred or as an ‘earn out’ to protect your position and to keep the vendor locked for a period post-deal.
Have you thought about how you will fund the acquisition? Do you have the capacity for additional debt? Have you factored the servicing of the funding into your business plan and projections? Do your incumbent funders have the appetite to play their part in the transaction?
Finally, consider the other key stakeholders in your business. Employees are often spooked by rumours of mergers, whilst customers and suppliers may fear the consequences of a reduction in the competitiveness of your market, all of which indicate a need for careful change management and communication as you walk the acquisition trail.
Our specialist Corporate Finance and Tax teams can help you to find the right way forward for your business and then discreetly identify potential targets, negotiate heads of terms, raise acquisition finance and project-manage the entire process for you.View all insights