Making an acquisition can be an excellent way to accelerate your business’s growth. Combining with another business can help you become the market leader, or cement your existing strength even further. You may be able to reduce costs through economies of scale and by taking overlapping work out of the new business. Revenue synergies will be possible too, as the two businesses 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’s therefore crucial to plan and execute acquisitions with the greatest of care. And while no two deals are the same, the building blocks of M&A success should not vary.
Put the right team in place
The very first step for any business contemplating making an acquisition should be to assemble a team that will take responsibility for the deal. That team will probably be led by the CEO, but 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 engaging with external advisers — lawyers, accountants and finance providers. Make sure everyone knows what their responsibilities are and set up processes for regular communications.
Establish your business strategy
You probably have some vague ideas about why you think the time is right for your business to contemplate M&A, but it’s important to set down a strategic plan for an acquisition. What are your specific objectives for any deal? Are you looking to enter a new market, say, or to add scale to your existing activities? Are you looking to lower costs or grow revenues? Also consider what is realistic for your business — how large a transaction is possible and what finance you could raise.
Start looking for the right target
A carefully honed M&A strategy will help you conduct a much more focused search for an acquisition target. Alternatively, if you started out with a target, your strategy gives you a framework for considering whether what intuitively seemed a good idea really makes 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 external advisers can also help you with the search process.
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 its market position, its financials, its synergies with your own company and a host of other variables. There is also the issue of what price the target’s owners are prepared to accept. Don’t ignore intangible questions — the cultural fit with your business, for example. Take professional advice during the negotiation process.
Financing the acquisition
Having considered finance during your planning stage, you should be in a good position to put funding formally in place. But the right finance package will depend on the individual nature of the deal — consider all the options for debt, equity or a mixture of the two. Take professional advice on what is most appropriate.
Executing the deal
Your integration planning should have started well before you put pen to paper to close the acquisition. It’s important to have clear targets for how you will bring the two businesses together, spanning key operational issues such as people, premises, IT and so on. But you should also set targets for costs and revenues. With a plan in place you can hit the ground running on day one — and then review progress after, say, 30 days, three months and a year.
Acquisition Financing Case Study
The best way to understand how your company could use acquisition finance is to look at the way other businesses have done it.
In this case study you will learn how our funding enabled two management teams to accelerate growth through ambitious acquisitions without heavy dilution of the owners’ equity.