Managing the challenges of an acquisition - Prelude

Managing the challenges of an acquisition

‘If you’re going to make an acquisition, make lots of them; and avoid opportunistic or defensive acquisitions’

Matt Katz, Head of Corporate Finance, Buzzacott

 

This advice from Matt Katz under-pinned a roundtable on ‘Managing the challenges of an acquisition’. Hosted by The Supper Club, as part of a series of Breakfasts in partnership with Buzzacott, it brought together a cross-section of members either planning to acquire or sharing their experiences of growth through acquisition.

The focus for discussion came from Andy Hodgetts, Finance Manager of Blippar when it acquired Layar in 2014, who now advises tech companies as part of the Buzzacott team. Andy’s ‘dos and don’ts’ of acquiring a competitor were complemented by Matt’s extensive experience advising owner-managed businesses on acquisitions, disposals, management buyouts, fundraising and valuations.

Combining these technical insights with experiences from members of The Supper Club, here are five key areas to consider in the order you need to think about them with Tactical Tips for anyone looking to acquire as part of their growth strategy:

Planning

Acquisition must be part of a planned strategy to gain the most value and reduce unnecessary cost. When planning, factor in the time it will take to complete the deal as well as the integration…

  • A badly run business presents a greater opportunity for growth through transformation – but do you have the resources and experience to turn it around?
  • A ‘review and improve’ after every acquisition will help you and your team learn from mistakes, avoid pitfalls, and recognize assets
  • A good acquisition strategy is attractive to a future buyer, but they will also want to see strong organic growth and proof of a well-run business

Approach

It’s an emotional experience for any owner when someone offers to buy their business, so get under their skin, understand their motivations, and use language that resonates with them…

  • Owners might be concerned about their staff hearing about an approach to acquire, so post a letter to their home (info on Companies House / Duedil) to arrive on a Saturday when they are most likely to read it or use InMail on LinkedIn
  • Create a private webpage outlining your acquisition strategy, how it aligns with your values and ideally with testimonials from previous acquisitions – this will help to reassure owners that their business will be stronger and their staff and clients will be treated with respect
  • Getting advisors on-board early will show credibility but maintain direct communication to maintain the trust of the owner and don’t hand over too soon

Due diligence

Only 10% of approaches end in a sale so due diligence is vital to determine which are worth it. Always look beyond the financial track-record to the story behind the numbers and the real assets…

  • Consider whether to buy the asset or achieve the same result in partnership: if you can’t create value through a partnership, then how can you through an acquisition?
  • Bad accounting is an indication of the attitude and approach of the owner, and highlights an opportunity to achieve efficiency savings
  • Culture due diligence: find out more about the team by organizing a dinner or networking event

Integration

Signing the deal is only the beginning: don’t underestimate the time and cost of integrating two businesses – have a solid plan and stick to it and be prepared to double resource capacity…

  • Integrating back-end systems is the biggest challenge, so bring in contractors and retain outsourced support to maintain business as usual
  • Take 6 months to hand over so you can properly learn how the business works, but make hard decisions early as uncertainty will demotivate everyone
  • Customers may not want to migrate if it’s a hassle and if values appear to be at odds with what they have come to expect – so consider the importance of front line sales and customer support

Talent

People are the greatest asset of any business; find out who contributes most value, who are at highest risk of leaving (and why), and who you can afford to lose…

  • You may uncover ‘diamonds’ you didn’t expect but consider the recruitment costs of replacing key hires and factor this into the purchase price
  • The founder might help to migrate customers and keep talent during integration, so retain them as a consultant or put an earn out / deferred payment structure in place to motivate them
  • Communication is everything: invest in your internal PR and keep messages consistent

Looking to sell your business? Here are some video tips from Matt Katz on maximizing your revenues for sale.

 

 


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