How Do You Make Sure Your Not Buying A Pup
If your are looking to grow your business then growth through acquisition can be the fastest and most effective way.
Beware only 50% of acquisitions are successful so how can you improve your chances of success.
In this article we will consider
- Seven questions you need to ask pre acquisition
- Eight acquisition strategies
- Three acquisition numbers to consider
Seven Questions To Ask Pre Acquisition
- Why do I really want it – vanity / sanity
- Have I done my sums – overall it will inevitably cost significantly more than expected
- Does it make financial sense
- Can I live with the outcomes – 50% are unsuccessful
- Do I have a plan – Many businesses don’t have a clear strategic plan for their core business let alone an acquisition
- How will it fit in – see point 6
- How long will it take – Guess what it will take longer than expected (and consume a lot of time)
Growth Acquisition Strategies
- Acquisition will allow the existing business to improve its performance
- Acquisition will consolidate the industry and remove capacity
- Acquisition will accelerate market access
- Acquisition will allow you to acquire skills or technology (as opposed to doing your own development)
- Acquisition will allow you to pick a winner early
- Roll up – buy lots of little businesses to achieve a consolidation. Difficult as it becomes obvious what your doing so prices start to increase
- Consolidate to improve behaviour – need to get senior players on board
- Transformational merger
3 numbers to consider
- Your maximum price
- What the vendor will accept (you need to know their circumstances health, family, debt etc)
- What values are really being achieved
Looking to grow your business through acquisition
Remember 50% success on acquisitions could you achieve growth organically, have you got clear strategies in place to maximise organic growth. For more information on business development click here
Acquiring A Business 7 Questions You Need To Ask
- Why do you want it – this seems like a simple question but answering it truthfully will allow you to make sure that you are not just looking for a vanity purchase and have completely identified the rationale for the purchase
- Have you done your sums – so many acquisitions start with the desire to increase the overall value of teh organisation. So if we are a £20 million company purchasing a £5 million pound company grows our business by 25% . If only it was that simple it is critical that detailed analysis is completed to see if the acquisition will actually help in your growth
- Will it make financial returns – this links closely to point 2 in terms of will you be able to do things as a result of the business that will mean you will grow more profitably and faster than if you just grew organically
- Can you live with any outcome – if your acquisition is successful are you prepared for the pain and heartache that may follow the purchase
- Do you have a plan – so 100 days after acquiring the business are you absolutely certain where / how you will have progressed. A detailed plan of how you plan to manage the acquisition is a necessity
- How will it be fitted in – will the acquisition be integrated into existing operations or will it remain a standalone independent operation. In most cases elements of integration are required to allow for cost savings etc
- How long will you have to wait for benefit. It could be that you are simply acquiring in order to gain a customer list at which point you will transfer customers into the core activities. If you are buying IPR it could be many years before you see a return on investment
Only 50% of acquisitions are successful
With only a 50% success rate on acquisitions there are 4 points to consider
- Follow the money
- Resolve any people or power issues “Fast”
- Ensure that the deal structure doesn’t impact on change
- Make sure that due diligence goes well beyond just the financial issues
Acquiring A Business Additional Considerations
When looking to buy a business, there are several factors to consider to ensure that you make an informed decision. Here are some things you should keep in mind:
- Industry: It is essential to choose an industry that you are familiar with or have experience in. Look for businesses that align with your interests and skill sets.
- Size: Consider the size of the business and if it is suitable for your management style. Determine the number of employees, the size of the customer base, and the potential for growth.
- Financials: Review the financials of the business to determine its profitability. Look at the income statement, balance sheet, and cash flow statement. Consider the business’s assets, liabilities, and revenue streams.
- Reputation: Assess the reputation of the business and its brand. Look at online reviews, customer feedback, and news articles about the business.
- Market: Analyse the market the business operates in, including its competitors and the potential for growth. Determine if the business has a competitive advantage and how it can remain relevant in the future.
- Legal: Look at the legal aspects of the business, including any pending lawsuits, contractual obligations, and licenses. Consider if there are any liabilities or potential legal issues.
- Management: Evaluate the current management team and their experience. Determine if you will be able to work with the existing team or if you need to bring in new management.
- Financing: Consider the financing options available to purchase the business. Determine if you can afford to purchase the business, and if financing is needed, what options are available to you.
Overall, thoroughly researching and understanding the business you plan to buy is essential to making a wise investment. It is recommended that you seek the advice of professionals such as lawyers, accountants, and business brokers to help you make an informed decision.
Grow Your Business Through Acquisition – Summary
When looking to grow your business through acquisition, there are several important factors you should consider. Here are some key considerations:
- Strategic Fit: Evaluate whether the target company aligns with your overall business strategy and goals. Look for synergies that can enhance your existing operations, expand your customer base, enter new markets, or add complementary products/services.
- Financial Viability: Assess the financial health and stability of the target company. Review their financial statements, including revenue, profit margins, cash flow, and debt levels. Understand their growth potential and whether they have a sustainable business model.
- Due Diligence: Conduct thorough due diligence to uncover any potential risks or liabilities associated with the target company. This includes examining their legal, financial, operational, and regulatory aspects. Engage professionals such as lawyers and accountants to assist with this process.
- Cultural Compatibility: Evaluate the cultural fit between your organisation and the target company. Assess factors such as management style, employee values, and work culture. Misalignment in these areas can lead to integration challenges and hinder the success of the acquisition.
- Integration Challenges: Consider the complexity of integrating the acquired company into your existing operations. Assess the potential challenges related to combining systems, processes, and teams. Develop a detailed integration plan to address these challenges and ensure a smooth transition.
- Market Analysis: Evaluate the target company’s market position, competitive landscape, and growth potential. Determine how the acquisition can provide you with a competitive advantage, access to new customers or markets, or strengthen your market position.
- Legal and Regulatory Considerations: Understand the legal and regulatory landscape associated with the acquisition. Consider any potential legal hurdles, such as antitrust issues, intellectual property rights, or compliance requirements. Engage legal experts to navigate these complexities.
- Valuation and Negotiation: Determine the fair value of the target company and negotiate the acquisition terms. Consider factors such as the company’s financial performance, growth prospects, market conditions, and comparable transactions in the industry. Seek professional advice to ensure a fair and favorable deal.
- Integration Planning: Develop a comprehensive integration plan to merge the target company with your existing operations. Consider factors such as organizational structure, systems integration, cultural integration, communication strategies, and employee retention.
- Post-Acquisition Strategy: Define your post-acquisition strategy to maximise the value of the acquired company. Identify specific goals, initiatives, and milestones to achieve synergies, streamline operations, and drive growth.
Remember that every acquisition is unique, and the specific considerations may vary depending on your industry, company size, and growth objectives. Engaging professional advisors such as investment bankers, lawyers, and consultants can provide valuable expertise and guidance throughout the acquisition process.
If you would like to know more about Customer Acquisitions contact Andrew Goode MBA, MSc, FCIM Click here to arrange a call
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