At BOOST&Co, we’re all about helping companies to grow, and making an acquisition can be an effective way to achieve this. Times are tough amid the Covid-19 pandemic, but government initiatives such as the Coronavirus Business Interruption Loan Scheme (CBILS) can provide funding not only for recovery, but also for growth.
Our partner, Growth Lending, is an accredited lender for CBILS, which closes for applications on 30 September, and our term loans are specifically designed to accelerate your company’s growth. So, how could you use this money to fund your expansion via mergers and acquisitions (M&A)?
Combining with another business can make you the market leader or cement your existing strength. You may be able to reduce costs through economies of scale or by taking overlapping work out of the new business. Another benefit is that the two companies can sell their services to each other’s clients.
However, an M&A transaction also represents a risk: get the deal wrong and you may end up destroying more value than you create. It is therefore crucial to plan and execute acquisitions with great care. No two deals are the same, but here are the six key factors you need to get right.
Put the right team in place
The first step for any firm contemplating an acquisition should be to assemble a team that will take responsibility for the deal. It will probably be led by the chief executive, but it should also include representatives from functions such as finance, sales and operations, depending on the nature of your business. You may also want to begin to engage with external advisers, such as lawyers, accountants and finance providers. Make sure that everyone knows what their responsibilities are, and set up processes for regular communications.
Establish your business strategy
You probably have some ideas about why you think the time is right for your business to contemplate M&A, but it is important to set out a strategic plan for an acquisition. What are your objectives for any deal? Are you looking to enter a new market, say, or to scale up your existing activities? Are you looking to reduce costs or increase revenues? Consider what is realistic for your company: how large a transaction is possible and how much finance could you raise?
Start looking for the right target
A carefully honed M&A strategy will help you to conduct a focused search for an acquisition target. Alternatively, if you are starting out with a target in mind, your strategy gives you a framework for considering whether what seemed like a good idea really does make sense. Don’t limit your options: a wider search process will throw up more opportunities to consider. Use industry contacts and networks to identify potential candidates, but remember that external advisers can help you, too.
Pricing the deal
Valuing a company is an art as well as a science. What you are prepared to pay for your target will depend on a number of factors, including its market position, its financial information and how it will align with your company (don’t ignore intangible considerations, such as the cultural fit with your business). There is also the issue of what price the owners of your target are prepared to accept. It is wise to take professional advice during the negotiation process.
Financing the acquisition
Having considered potential sources of finance while planning, you should be in a good position to put funding formally in place – but the right package will depend on the individual nature of the deal. Consider all the options for debt, equity or a mixture of the two, and take professional advice on which is most appropriate for you.
Executing the deal
Your integration planning should start well before you put pen to paper to finalise your acquisition. It is important to have clear targets for bringing together the two businesses, encompassing key operational issues such as people, premises and IT. You should also set targets for costs and revenues. With a plan in place, you can hit the ground running on day one, then review progress after, say, 30 days, three months and a year.
Read our principal Joanna Scott’s expert view on how M&A is bouncing back – and why now is the time to act
If your SME is looking for funding, contact our principals – Joanna Scott (London), Ryan Sorby (Manchester), Lauren Couch (Bristol) or Faye McDonough (Cambridge)
We provide the government’s Coronavirus Business Interruption Loan Scheme – get more details here