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When it comes to growing your business, acquisition can be a great strategy for rapidly gaining customers, accessing new markets, or even obtaining key talent. But making the decision to buy a business—and executing that strategy successfully—requires careful thought, due diligence, and the right support.
In this guide, Mark Smith, Corporate Finance Director at Scrutton Bland takes a closer look at how you can develop an effective business acquisition strategy including how to start, what to look out for, and helpful tips to make a strategic acquisition that benefits you and your business in the long run.
Why now?
As we approach the festive season and the period they now call ‘Twixmas’, what better time to sit down and design your business acquisition strategy.
Ok, I mean this tongue in cheek but, my point is that designing a business acquisition strategy takes time. It’s not something to do in between meetings.
So, what should you consider when designing a business acquisition strategy.
Start with the bigger picture: Why do you want to acquire?
There can be a multitude of ‘whys’ for business acquisition, but the why has to be the right why.
Most acquisitions are made with a view to increasing profits, but this could be through increasing revenues (perhaps by acquiring a competitor), looking at some vertical integration (perhaps by acquiring a supplier), or perhaps improving processes (if there is a competitor that does things better).
The important thing is to know your ‘why’. So that if someone approaches you to ask if you would like to acquire, you’re focused on your acquisition strategy – not a sellers disposal strategy.
A bit more than a wish list
There will be a list of ‘must haves’ and probably some ‘don’t needs’ too, and it’s important to document these. Premises are usually a big must have or don’t need, as well as what might be considered facilities, such as a Research and Development facility. Unlike Christmas presents though, when you complete a business acquisition there is no returns policy so you’ll need to be firm with your wish list.
There are multiple sources of information as to potential businesses that might be of interest – but this needs to be a joint effort. It would be unusual if we, as professional advisors, know more about your business than you – but we do have access to databases as well as the experience of a team of people that work with a multitude of clients, to be able to support you. Of course, we’ll need to fully understand your ‘Why, and this is always best done face to face to make sure all possibilities are explored.
Find the right fit
It’s important to think through the practicalities of any potential acquisition because much like chinos after Christmas – some acquisitions won’t fit. It’s really important to think through the practicalities of any acquisition Location, people, culture and existing management will all be very important.
Ultimately, you’ll be looking at an acquisition where you’ll be adding new people to your existing team, as well as new space and products and customers. There will need to be a post-acquisition plan too. You’ll be making a significant investment so it’s important to get a return on it as soon as possible
How does an acquisition work?
So, you decide to acquire, and that you’re looking to acquire a competitor – job done?
Not quite.
Even if you’ve decided which competitor to acquire – you’ll still need to determine precisely what you want to acquire.
Broadly speaking you’ll probably complete a share purchase or a trade and assets purchase.
Typically, a share purchase is preferable to the seller and can be preferable to the acquirer too as its much easier to continue ‘business as usual’.
But it might be that a trade and assets transaction is better for you – perhaps because they own a freehold building that you do not wish to acquire or because you are aware of a skeleton in the cupboard that you need to steer well clear of. Skeletons always pass over with a share deal (even though the risk can be mitigated in the Share Purchase Agreement).
With a trade and assets deal it is easier to leave the skeletons behind – though a trade and assets deal can be more expensive for tax reasons – but that’s something for another article – as is the whole ‘How to complete a business acquisition’ piece.
How long does an acquisition take?
If you’re reading this over Christmas and thinking you’ll get in touch as soon as the break is over, in the hope that you’ll complete the acquisition in Q1 then I’m sorry to say that it’s highly unlikely a transaction will complete in three months. Less scrupulous advisers will promise you the world – that’s not what we do.
All transactions take different amounts of time, but between 6 and 18 months would be typical. If the target is marketing itself for sale and has engaged professionals, then clearly this should be quicker than if you have approached a target out of the blue to see if they are interested in selling.
What to do next?
Deciding on an acquisition strategy and completing an acquisition can be like a rollercoaster ride. If you like rollercoasters that’s fine – other than on an acquisition rollercoaster there’s a lot riding on it – the financial costs (both of the transaction and then the ongoing costs if the acquisition doesn’t turn out as planned) and your costs – in terms of time and a degree of stress – can be significant.
If an acquisition strategy is something you’re considering – whether you have an outline of an idea or not – and you want to discuss it with a team that have experience of the process, come and talk to us. Call Mark or one of the Corporate Finance team on 0330 058 6559 or email hello@scruttonbland.co.uk
And, if its January then feel free to bring in the remains of the Christmas chocolates – we’re all for using inanimate objects to move around the table and help visualise how the various parties and stages in a transaction might work out!
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