Before you make the offer to acquire a business – Consider what happens next Post-Acquisition Strategies Prior to making an offer, the acquirer should consider the purpose of the acquisition and re-visit the reasons for making the acquisition and how well the target fits within those reasons. The steps required are: Confirm the acquisition meets the deal objectives Is the business to be run standalone or integrated? Is the culture very different and will this inhibit the deal success? Does the acquisition meet the objectives set out in the overview? Ensure the commercial due diligence checklist is linked to running the business Understand the competitive landscape the acquisition target operates in. Understand the management intentions and how to use the management team being acquired to best advantage. Plan to take advantage of the “halo” effect Identify the areas where the quickest and most profitable extra profit can be obtained and assign people to exploit … [Read more...]
Acquiring a Business – Issues to consider – Part 3
WHY DO ACQUISITIONS FAIL AND HOW DO YOU AVOID A BAD OUTCOME? It is an unfortunate fact that Acquisitions have a very high failure rate. This may seem a powerful statement but it is borne out by the statistics. "If one were to define 'failure' as failure to increase shareholder value then statistics show these to be at the higher end of the scale at 83% (Cnnfn.com 1999).” “In 2004, McKinsey calculated that only 23% of acquisitions have a positive return on investment.(http://jurisonline.in/2008/11/failure-mergers/)” The generally accepted view is that over 50% of all acquisitions fail to achieve an increase in shareholder value. I believe that this applies mainly to very large acquisitions and they are the ones that hit the headlines. In my experience, most acquisitions, undertaken with careful planning and due diligence do provide significant value.The main areas to consider are: proper strategic thinking for an acquisition sufficient and well thought-through preparation by … [Read more...]
Acquiring a Business – Issues to consider – Part 2
WHAT SPECIFIC ATTRIBUTES MAKE AN ACQUISITION AN ATTRACTIVE STRATEGY? Acquirers are interested in growing their own businesses and an acquisition is one of the options available to them, and usually provides a faster track to growth than organic growth. In addition, they can be interested in other benefits, for example: geographic expansion customer base customer spread, i.e. for a retail business a large number of customers, for a manufacturer a number of blue-chip customers, such that there is no undue reliance on a small number of customers contract durations repeat business patterns skill-sets technology Intellectual Property Rights depth and quality of management uniqueness and competitiveness of products and services scalability of products and/or services market position and brand systems and processes, particularly relating to winning new business distribution quality of service the “halo” effect, the extra revenues and profits that can be gained from e.g. … [Read more...]
Acquiring a Business – Issues to consider – Part 1
WHAT IS THE MAIN STRATEGIC REASONING FOR ACQUIRERS OF A BUSINESS? Acquirers do not buy the past performance of business. They buy the future performance of the business, but use the past performance as a guide (along with other things) to establish the likelihood of the future profits. Acquirers can have diverse motivations: ego or status a carefully thought out strategy opportunistic reasons, e.g. see a competitor of failing business up for sale and think a good deal may be had by acquiring it a Seller (or the Seller’s Advisor) has managed to paint a vision for the Acquirer of what the end result will look like of the two businesses once they have been merged. The case will appear convincing, such that the Acquirer will believe that, by acquiring, he or she will be able to generate a value significantly greater and faster than the alternative of continuing organic growth. Whatever the starting point, once an Acquirer is “in play” and considering an acquisition, then it is the … [Read more...]
What do you do with an unsolicited approach to buy your business? – Step 5
So, someone has approached you to buy your business. It is unexpected and out of the blue. What should you do? In Step 1, I suggested you meet the acquirer and decide whether his vision suits you and whether you like and can trust him. In Step 2, I suggested it is time to get close to appoint an experienced Mergers and Acquisitions Adviser who knows your market and your business. In Step 3, I suggested you decide what you want to do and what you want to get out of it. In Step 4, I suggested you took the time out to prepare all the information you will need to sell your company and provide the necessary information for an acquirer to value it. Now we are getting down to the nitty gritty. This is the real start of the sale process. Until now, you have been involved in a “phantom war” and have set about preparing your strategy to attack and also shoring up your defences. Step 5 – Develop trust between you and the acquirer The acquirer is not in a position to … [Read more...]
What do you do with an unsolicited approach to buy your business? – Step 4
So, someone has approached you to buy your business. It is unexpected and out of the blue. What should you do? In Step 1, I suggested you meet the acquirer and decide whether his vision suits you and whether you like and can trust him. In Step 2, I suggested it is time to get close to appoint an experienced Mergers and Acquisitions Adviser who knows your market and your business. In Step 3, I suggested you decide what you want to do and what you want to get out of it. Now let us assume that you have decided to pursue a deal with this single acquirer ….. the chemistry is right, the strategic imperatives make sense and you and your advisor feel you could get a decent deal out of it. Step 4a – Get your financial information ready; involve your accountants Then get your accountant involved; make sure your management accounts are up to date, get the last financial year’s accounts and tax returns completed and ready for filing, prepare a detailed budget and cash flow forecast … [Read more...]
What do you do with an unsolicited approach to buy your business? – Step 3
So, someone has approached you to buy your business. It is unexpected and out of the blue. What should you do? In Step 1, I suggested you meet the acquirer and decide whether his vision suits you and whether you like and can trust him. In Step 2, I suggested it is time to get close to appoint an experienced Mergers and Acquisitions Adviser who knows your market and your business. Things are now getting more serious, and the acquirer will be in what I call the “Discovery” phase. Under a Confidentiality Agreement, this is where the acquirer asks you questions which are intended to provide the following answers: Is your business worth acquiring i.e. does it really meet the strategic criteria set by the acquirer? If so, what is it worth to the acquirer and what sort of deal can be offered Before you can answer any questions, you need to take a “time out” and go through Steps 3. Step 3 – Decide what you want to do and what you want to get out of it – the “Strategic and … [Read more...]
What do you do with unsolicited approach to buy your business? – Step 2
So, someone has approached you to buy your business. It is unexpected and out of the blue. What should you do? In Step 1, I suggested you meet the acquirer and decide whether his vision suits you and whether you like and can trust him. If the company is a listed company, rest assured the deal will be difficult as you will be turned inside out and upside down. If you have a good feeling from the initial meeting, and the acquirer asks you for another meeting, do not set this any sooner than two or three weeks ahead. If, after the initial meeting, the vision of the acquirer excites you, now is the time to start the “sales process”. After all, you probably (definitely?) want to get the best price and the best terms for yourself and other stakeholders. Sitting back and waiting for it to happen won’t get you there. Step 2 – Appoint a Mergers & Acquisition Advisor Ask your accountant or trusted advisor to recommend a Mergers and Acquisition Advisor – warning, accountants … [Read more...]
What do you do when you get an unsolicited approach to buy your business? – Step 1
I am sure you have often heard the legend – no it really is a myth, no more than that, it’s a fantasy …. - about the business owner who met someone in a pub who offered £1m (or any other aspirational number) to the owner to hand over the keys and walk away. I have yet to meet that buyer or that business owner. Nevertheless, what should you do when you are approached to sell your business? Businesses on the acquisition trail, will have a carefully thought out strategy of what they want to buy and where it will fit in with their long term growth plans. They will research the market for suitable targets. Once you have popped up as a potential target, there will be many reasons for considering your business as one to talk to. The most common reasons are to acquire: a new product line or service stream to sell into their customers, a customer base to sell their own products into, specific skills or geographical coverage. You need to find out what the acquirer’s reasons for … [Read more...]
