Buy a company and power your growth
How to make a successful acquisition
Acquisitions are one of the most mercurial elements within growth. Get them right and you can join the elite group of SMEs that grow at 10%+ a year. Get them wrong and you can undermine your whole business.
The option of buying your way quickly into a new market or adding to your current capacity is attractive for many SMEs. When you take on an existing business, you can miss out all the complications of starting up again from scratch and put yourself in a position to leap ahead.
As you line up and pull together a deal, your upside can easily evaporate, leaving you to wrestle with a series of inherited problems. So what steps can you take to improve your chances of realising the potential in your acquisition?
- you might be tempted to pick up a bargain. By and large, however, the acquisitions that work best are those that are clear in their business logic and know what they are looking for.
- before you start your search, be sure you have the capability to take on and manage a new operation with a different culture. You could find yourself testing your systems in finance, HR and ICT to the limit.
- dig deep to find your target. Thousands of companies are for sale at any point in time. The one you want may not appear on the list. So explore all available avenues and networks to find the right fit for you.
- judge your approach carefully. You might be able to ask your target directly whether it is for sale. You might sound them out through an advisor. Or you might begin by discussing the potential for a partnership.
- work out whether you want to assume full control of your target by buying all its shares and taking on all its liabilities. Or whether you are going to bid for the assets that matter to you.
- you can value a target in numerous ways. For SMEs, it will usually be a multiple of profits, which you will calculate against the potential for future growth or savings.
- as far as you can, line up your finance in advance. You might be hoping to borrow against the target or defer payments. You will be in a stronger position if you raise money against your own profits and assets. You may also end up paying 10% less.
- once you have agreed the shape of the deal, it pays to review all your assumptions. How secure are your target’s customers? Are key employees happy to remain? Are there any hidden liabilities? You can then ask for any guarantees, warranties or indemnities to be put in place
- once you take control, it is best to make a start in integrating your two operations and managing the expectations of your new employees as soon as you can.
Always remember that only a third of acquisitions generally end up making a return. A third underperform. A third fail altogether. The outcome of your acquisition heavily depends on how you resolve the tricky series of questions you will face.