If you are thinking about expanding through acquisition, Colin Thompson provides 10 useful tips for success.
There are many good reasons to grow your company through acquisition. for example, you might be a commercial printer looking to add display printing, vehicle graphics, or wall decor. On the other hand you might be a sign maker and are looking to add cut sheet production printing and you don’t want the hassle of starting from scratch. Either way it can often be beneficial to acquire an existing company along with its customer base. Colin Thompson takes a look.
1. Set down your rationale
Is the right strategy for your business? Create a realistic strategy for growth through a strategic review and weigh up the benefits of an acquisition. Create an 'acquisition profile' of the business sought.
2. Do not wait for the 'for sale' sign
Seek suitable businesses before they come on the market. While they may not currently be considering selling, they may be open to offers. Engage a professional adviser with industry specific knowledge, experience and someone who will offer fees on a contingency basis.
3. The target organisations
Make approaches and let the target know you are serious while ensuring discretion and confidentiality.
4. Reviewing the situation on the possible acquisition
Is this still the type of business you were originally looking for? Use your adviser's knowledge while also conducting thorough research on the target.
5. Is the price right?
Overpaying is a common issue in acquisitions which can affect financing - do a thorough valuation. Be aware of the vendor's price expectations and what is included in the sale. Get copies of recent financial and other useful information. Conduct a thorough valuation through your own advisers to compare it against that of the owner. Is the deal possible? How much is it worth to you? How can you improve/add value?
6. Put an offer on the table
Liaise with your adviser on how to present an offer. What are you buying and how do you wish to structure the deal? How long do you want the hand over period to be? Which key staff will you retain? Your adviser will ask the difficult questions and negotiate terms. 'Heads of Agreement' will follow to summarise principle terms of the deal.
7. Due diligence
This is a thorough investigation into the acquisition target covering financial/tax matters, commercial and legal aspects, property issues, environmental and health and safety matters, etc. A professional adviser will reduce the stress and ensure this is a smooth process while reducing risk. This process is essential to external funders. This stage will also include developing your Business Plan and financing proposals.
8. Proceed with caution
Following due diligence you can move to a "Sale & Purchase Agreement" drafted by corporate lawyers, or renegotiate following any issues that arose during due diligence. Your adviser negotiate any necessary changes on your behalf.
9. Be pragmatic
How will you structure financing? Up/middle/down sensitivities should be completed which highlights to a funder that you are commercially pragmatic.
10. Helping the ground settle
Do not celebrate just yet. One of the major reasons for failure of a successful acquisition is the failure to implement a post-acquisition strategy. Additionally how will it be announced and how will employees, competitors, customers and suppliers react. Be sensitive to cultural differences in the newly enlarged organisation.
The entire acquisition process usually takes between five and 10 months; if it is taking longer, both parties need to take a step back, determine the holdup and decide if they should continue with the process.