The Challenge
Growth can be achieved quickly by making acquisitions, but be aware that statistically most acquisitions do not ultimately create value for shareholders.
The Solutions
Acquisition Versus Organic Growth
- Identify the key reasons for making an acquisition
- Consider the alternatives, eg recruiting key staff from your competitors
- Understand the demands that an acquisition will make on your time
- Be realistic about the costs of lawyers and other professionals
- Consider the cultural implications for both businesses
Select Your Target Carefully
- Be specific in the type of target you are seeking
- Prepare a detailed acquisition plan and identify what you are buying
- Be certain that you have the skills to run the business post acquisition
- Carry out a valuation and set your acquisition parameters
- Ensure you have the financial resources to complete the deal
Try to Identify Synergies Before Proceeding
- Consider the proposed structure of the acquisition
- Be confident that synergy is available so that "2+2=5"
- Avoid diversification which rarely presents opportunities for synergy
- Make sure any apparent cost savings are really deliverable and assess their financial implications
- Consult your sales team on opportunities for cross selling
Do not Cut Corners with Due Diligence
- If your own team is carrying out your commercial due diligence, make sure it covers all the bases
- Consider external market research where appropriate
- Accounting due diligence should be historic but also involve a detailed model of the combined business for the next two years, at least
- Legal due diligence should uncover any 'skeletons in the cupboard'
- Don't forget IT, intellectual property, pensions and similar areas
Be Meticulous with Post Transaction Integration
- Be prepared for your senior team to be heavily involved post transaction
- Don't operate in a mirage of optimism
- Tough decisions may be necessary
- Focus heavily on financial information systems and improve them as a priority if needed
- Don't underestimate the commitment which may be required
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
