Written by James Bailey, Partner
Acquisitions continue to shape the growth strategies of many businesses and can be a central route to new markets, products, resources or simply to grow profitability and turnover faster.
Making a single acquisition can be a challenge in itself but how should a business go about completing a number of deals?
While there isn’t a guaranteed formula, we have supported several clients in their plans, working closely with them to manage the process and ensuring that the risk and disruption to day-to-day operations are minimised.
Here are our top tips for managing acquisitions.
Have a clear strategy (and try to stick to it)
The strategy should include all your business reasons for seeking an acquisition. You need a clear plan of your long-term goals and how any acquisition will underpin these.
Your M&A plan should include: the nature and scale of business you want to buy and the number of acquisitions you want to make. Think about your biggest channels of growth and opportunity, as well as any gaps that an acquisition could fill.
Whilst you don’t have to stick to this plan rigidly, it is wise to set some criteria and boundaries for your M&A strategy. Be clear on how far you are willing to stretch your criteria if an opportunity arises.
If you are talking to external funders, you will need this clarity for them to have confidence in your ability to plan and manage acquisitions. This in turn will help to secure funding for your plans.
Create a dedicated team
You need to ensure you have capacity in terms of internal resource. This in-house resource in combination with the right external advisors is key to success.
The Internal team are likely to have day to day responsibilities as well, but you need to ensure those individuals have the time to focus on their M&A roles. The strength and skills of your internal team can often be a major contributor to success or failure.
Avoid large teams that might have fragmented/siloed views losing sight of the overall strategic objective. Build a tight and trusted team of internal stakeholders and compliment this with external advisors working together and communicating clearly to ensure the process runs smoothly.
Run a process but recognise the needs and worries of the seller.
As a buyer you will have a process to work through, however, you need to ensure that the process itself does not affect the outcome.
For example, if you are a larger organisation buying smaller owner managed businesses, the owners will have concerns for the future of their business post sale, including their staff, the brand, the business reputation etc. You need to put yourself in the mindset of the seller and avoid looking overly corporate in approach.
Keep your own process and details of any other deals you may be working on away from the seller. To complete a deal, you need to ensure the seller feels that you are focused on their needs. There is nothing worse than making them feel like you have other priorities.
While you need to have a clear process as the acquirer, don’t let this override the emotional connections and remember that the vendors will need assurances from you.
For the seller, the price will no doubt be a priority but there may be “softer” needs that they will be looking for alignment on before agreeing a deal. Listen closely to the seller and then do your best to reflect on these as you execute the acquisition as this may well be the key to getting the deal across the line.
Create a pipeline of potential acquisitions and manage it!
Understand that not all acquisitions will run at the speed you expect and that some deals may take longer. You need to be willing to adjust the timeline to suit the seller and their needs.
If you are looking to acquire multiple targets, there is huge value in having a pipeline of potential deals and targets at various stages. Over time you will likely have a pipeline that consists of deals at first contact, valuation analysis, negotiations, due diligence and near closure.
As a buyer you won’t always be in control of the negotiation process or it’s timing. Often, we find that a seller may have unrealistic expectations of their business value, in this case if the business is growing, it may be a better for them to sell in 6 or 12 months when the business might have ‘grown into’ the price.
We can often be talking to potential targets for years before they decide to sell. So, buyers must be prepared for the long haul.
This is especially true if the deal is off market i.e., the founder was not considering selling and you’ve approached them. You will need patience to let the seller consider their options, think about the approach and what they want from any potential deal.
Listening to the needs of the seller, being patient, straightforward and respectful to the sellers of target businesses will ensure you create and maintain a good reputation in the market as an acquirer – this is incredibly important – a good reputation is hard won!
What our clients say…
“Acquisitions form a key part of our growth strategy. Having the right team in place both within our business and externally has been critical to delivering. We have developed a process that enables us to deal with all types and scale of opportunity – this is crucial to enabling us to win the trust of vendors and then execute deals in the most effective way for all parties.”
Ed Hannan, CFO Jensten Group
As a buyer, you should not underestimate just how time-consuming and resource-intensive acquisitive growth can be.
To minimise risk and disruption, you will need to have a clear plan and capacity internally to manage the process without disrupting your day-to-day operations.
There is no single, overarching recipe for meeting M&A objectives as companies in different sectors have their own unique challenges. However, setting goals, being patient but focussed and having the right people in place, including experienced external advisors is critical.