Whether you’re considering expanding your geographical footprint, accelerating the growth of an existing revenue stream, acquiring new technology or looking at new ways to diversify, acquiring another business can greatly assist in accomplishing or accelerating these plans. However, before doing so, business owners need to consider a number of factors to ensure success.
Are YOU ready?
When acquiring any business, there are a number of factors that business owners need to consider before jumping in. Areas such as:
- Where is your business within its own life cycle?
- Have you conducted a full competitor analysis of your industry to understand your position within the market?
- How much capital are you willing to spend, and what options/combinations for financing your acquisition strategy have you considered, be it retained cash reserves, bank borrowing and/or private equity?
- Do you have adequate financial and human resources in place for any integration plans to succeed or to manage the business to be acquired if you envisage it will be operated on a standalone basis?
- Have you considered tax structuring and the impact of an acquisition to your existing tax regime (e.g. small to large company corporation tax regime)?
- Have you instructed suitable advisors that have the relevant experience of advising on acquisitions? Accountants, including tax specialists, and lawyers are critical in any acquisition, as well as appointing someone, whether that be internal or external, to oversee the entire transaction on your behalf.
Finding the right target to acquire
Once you have considered the above points, the next step is finding a target(s) that is right for your business.
At this point, you need to consider:
- What’s the underlying and more critically the future sustainable profitability?
- What will the deal structure look like? Are you buying shares or just the trade and assets?
- What is the value of the business I am buying?
- Will there be a vendor earnout provision, and what will it be based on?
- What it the predicted timeline?
- How does the target business complement your business and how will it be integrated?
- How does the customer profile compare to your business?
- What does the supply chain look like?
- What will happen with the current management team and its employees?
The importance of Financial Due Diligence – do you really know what you’re buying?
And this is where the importance of due diligence comes into play. You may think you know what you’re buying but how do you know for sure?
The early identification of areas of concern and risk, together with recommendations and advice is an essential part of the acquisition process.
Your due diligence advisors can provide thorough analysis on the following key areas:
- Assessment of historical and current performance, including its Key Performance Indicators;
- Quality and sustainability of underlying profits;
- Quality of financial information;
- Customer or supplier dependences;
- Cash generation;
- Underlying net working capital requirements and level of free cash or debt to be added or deducted from the agreed Enterprise Value in determining what is paid to the selling shareholders;
- Tax risks;
- Robustness of the financial projections and how they compare to historical and current results (if available);
- Employee benefits
Financial and tax due diligence is critical to avoid any unpleasant surprises post-acquisition.
Post-acquisition – your 100-day plan to delivery
Ensuring a smooth integration immediately following completion is critical for maximising success of an acquisition and having a formal ‘100-day plan’ can greatly assist. So, what key items should form the framework of this 100-day plan?
- Setting out the team members responsible for different areas of the 100-day plan along with clear deliverables and timeframes;
- Detailing how and when the key issues or opportunities from the due diligence findings are going to be actioned;
- Employee onboarding (communication of what is happening and what is it in for them is critical to get across from day one);
- What is the vision – communication to all key stakeholders is key here, primarily being the employees, the customers and the key suppliers;
- Integrating systems; and
- Ensuring key performance indicators following the acquisition are monitored and acted upon.
The next steps
In summary, there are many key areas that need to be considered at various stages of the acquisition process, and receiving expert guidance throughout is key to ensuring success.
If you have any questions in relation to this article or require any advice in relation to your specific circumstances, please contact Ross Wiggins or contact us via the form below.