By Guy Rigby, Head of Entrepreneurs at Smith & Williamson
Growth can be achieved quickly by making acquisitions, but be aware that statistically most acquisitions do not ultimately create value for shareholders.
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 firstname.lastname@example.org 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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