Business owners looking to grow have plenty of options for building a business from the ground up. More competitive pricing, hiring new people to enter new territories, ramping up production to exploit unlimited demand, or opening a new depot are all worth considering. But organic growth, which is intrinsically less risky than an acquisition, takes time and there is no certainty of success.
It is often more effective for your business to acquire another rather than to expand if an appropriate target can be found. With confidence on the rise, cash-heavy balance sheets are not uncommon and acquisition growth has once again become a viable option, certainly for larger SMEs.
So how can you minimise the risk and make your acquisition a success?
1. Prepare to spend months in planning and research
Any SME looking for acquisition growth must be prepared to invest a substantial amount of time on research and planning – typically months. Initially, the major hurdles are identifying a suitable target in the first place and establishing whether it is available for sale. An owner-manager can do a certain amount of the groundwork themselves, but an advisor is often the catalyst that brings together buyer and seller.
2. Try and find targets that are off market
Ideally, you should be trying to find targets that are off-market,” says Charles. This can help to avoid pursuing a business that’s already for sale and being marketed, and where you end up competing in an auction situation.
3. Consider synergies
The next step is to consider the potential synergies and advantages that both businesses stand to gain. When the time comes for your intermediary to make the approach on your behalf, the target must know that you’re serious. It’s best to have spoken to your financiers first and have an idea of the price you want to pay, so you can clarify quickly whether or not everyone is wasting their time.
4. Think about key stakeholders
As long as your target is willing, available and viable, the next biggest concern for an acquirer is to retain the key stakeholders (e.g. employees, suppliers and customers) who make the business tick. Speaking directly to such individuals and businesses before the deal goes through can be highly sensitive, but it’s also imperative. Unless you can tie in the supplier critical to the business, or win over the employee responsible for creating the technology on which it relies, the acquisition can rest on very shaky foundations.
We recently advised a financial institution on its investment in a telecoms business that was about to sign a big customer. The whole deal relied on this contract, so despite resistance from the target, we insisted that our client had to speak to the customer in question.
5. Have a good post-merger integration plan
A really good post-merger integration plan and total clarity on what you’re trying to achieve by making an acquisition are the main prerequisites for success. It’s quite easy for something to de-rail a good post acquisition integration: history is littered with them.
You need to understand the business’s key risks and have a proper 100-day plan of actions that you’ll make straight off the transaction.
Just remember, that sometimes it’s quicker and more efficient to make an acquisition, because you get instant ‘bang for your buck’, whether in terms of geography, people, skills, new markets or channels.
In today’s climate, there are opportunities out there for the taking, not least because those who have struggled to find willing buyers for their businesses in recent times are now very keen to exit.
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