If you’re thinking about making a business acquisition, it’s an exciting time for your business. Growth is on your mind, and buying an appropriate company is one tried and tested method towards achieving that.
Before you plunge in, though, there’s a lot to consider: including if it really is the right strategy for your growth, as well as the proper process to follow. As experts in this field, here is our quick guide to getting started with a business acquisition.
What are your strategic goals behind a business acquisition?
For your acquisition strategy to be successful, it is not enough to simply want to grow. You need to drill down into how an acquisition will specifically help you achieve this.
There are many ways in which it could, and pinning down the right reasons for you will help you make good decisions. For example, you could:
- Desire a specific set of capabilities that your company doesn’t possess, through staff, processes or equipment – say, a general builder wishing to acquire a plumbing company.
- Identify that you could significantly improve the performance of a target company, creating value for yourself.
- Recognise that both your current and target company will benefit from economies of scale that a merger would bring.
- Want to absorb some of the capacity of the market, meaning fewer competitors for you to contend with.
Being clear on your core motivation for an acquisition is invaluable for helping you pick the right companies to target; and the subsequent integration and/or management once the purchase is complete.
Once you know what you are looking for and why, be sure to also understand how much you are willing to spend (in cash, and any other resources you will need to invest to make it work).
Researching target companies
You may have local knowledge already or even a company in mind, but it is sensible to go through a formal process. This will take out some of the emotion which could otherwise cloud your judgement and risk you overpaying or taking on a white elephant.
When researching, create criteria like the markets you want to access, the nature of the client base you are interested in and any synergies you seek.
There are specific databases which list businesses for sale along with next steps for an approach. And with the internet at your fingertips, you can also access swathes of other data which will assist you with your research, albeit in a more DIY fashion.
Making an approach and due diligence
There are different ways in which an approach may be made to a business you wish to buy, depending on how you found the company.
At a most informal level you may know the business owner and sound them out yourself if you feel it appropriate. In other circumstances, you may prefer to go through intermediaries or be compelled to.
Expect to sign an NDA at this stage as you start to explore the terms of a sale.
If a deal can be made, don’t forget due diligence! Allow for at least several weeks to complete this process. It is your last chance to make sure that everything is as it seems, so take your time. Bring in your own expert advisers and become thoroughly acquainted with the business.
If you are not satisfied after your due diligence, you can attempt to renegotiate or even pull out of the deal. If, on the other hand, everything is okay, the due diligence stage should leave you with all your ducks in a row – ready to complete the deal.
Once that’s done, the real work begins!
Your trusted advisers
We are experienced in helping SME business owners, retailers and construction companies in all aspects of their accountancy, including advising on acquisitions.
If you’re interested in exploring this way of growing your business, get in touch.