23/11/2010

By Guy Rigby, Head of Entrepreneurs at Smith & Williamson


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 mandate 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

• Commercial due diligence is often but not always done by your own team

• 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, IP, 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 time which may be required


If you’re thinking about buying a business, contact Guy Rigby on 020 7131 8213, email guy.rigby@smith.williamson.co.uk or register here to arrange a complimentary corporate finance surgery to assess and discuss your options.

The information above is part of the Entrepreneurs' Toolkit series, produced by Smith & Williamson. More information on this and other toolkit topics is available at www.smith.williamson.co.uk/entrepreneurs/toolkit


Watch a video of Guy Rigby, Head of Entrepreneurs at Smith & Williamson, giving advice on how to manage cash flow.

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