20 November 2017
So you own a good business that you manage well and is growing organically. Congratulations!
If you want to move your business onto another level, even with all the current political and economic uncertainty, now may be a good time to think about acquiring a competitor or making a strategic acquisition.
One of the first things you need to be certain of is that you have the funding and the management strength to handle an acquisition. This could mean looking into your capital structure and the debt/equity ratio in your business to be certain that you have the liquidity needed for a successful acquisition.
You also need to be certain you have a management team able to take on all detailed work necessary when making an acquisition. The management team can of course be supplemented by external advisers.
You need to think about your competitive position and future objectives so you are clear about what you are trying to achieve through an acquisition. Are you looking to increase market share, enter new markets, acquire new products or processes, benefit from economies of scale or eliminate a competitor?
Once you’ve decided what you want to achieve from going down the acquisition route you need to identify suitable targets. What should you look for? Post-acquisition integration and how you will deal with the organisational and operational challenges that may arise has to be a consideration. Are there key people in the target that you would want to retain in the enlarged business? Are there different revenue and cost models that will work in a larger business?
Once you’ve identified potential targets and even got as far as negotiating heads of terms you will then need to undertake due diligence on the target. Due diligence requires getting the answers to lots of questions that the buyer should ask. It encompasses a range of subjects including detailed reviews of financial, legal, commercial, human resources, management, pensions, taxation, environmental, IT, technical and intellectual property factors that may all be present in any target company. Outside advisers are usually best able to carry out this detailed work, and that also gives you a second and perhaps more impartial view of the target.
You will need a transition team to plan for the integration of the target; they will have to consider operations, processes and culture of the two businesses. It is essential to communicate with employees in the two businesses so that a clear message is conveyed, and to also set milestones and targets to monitor progress towards key objectives.
Acquiring another business will be a lot of hard work; but the benefits can be tremendous.