As optimism of economic recovery increases, many business owners will look to grow through acquisition. But, when considering buying another business, how do you identify a good prospect? And is a done deal the end of the story?
Key considerations
Corporate Finance Director Mark Selby highlights key considerations:
“Firstly, why are you considering an acquisition? Are you diversifying to access new markets, grow market share, secure supply, or hope to achieve benefits of scale? Your answer will dictate the target.
“Size is important, but don’t become fixated with financials, like turnover. You should also consider factors like number of employees, locations, size of contracts, etc. Anything too big, approaching the size of your own business, will require considerable care. Too small however, and you have to be careful the acquisition is worth the effort.
“Funding will clearly limit the acquisition size and a talk with your bank manager or corporate finance adviser, early in the process, will give an indication of what you can afford.
“Target location is important. Buy close to home if you intend to integrate, but if you’re buying for geographic coverage, ensure you have the resources and ability to manage a remote business.
“Consider your management team: do you have the expertise and resources to handle the acquisition and the integration? Assess the quality of the target business management; gauge capability; likely reaction to acquisition; and the impact of team members leaving.
“The acquirer and target business should share a similar culture. It makes integration easier and reduces the risk of losing key individuals.
“Look carefully at the target’s potential. If you identify why the target is struggling and have the experience, ability and resources to turn it around, you’ve discovered a great opportunity.”
Deal done; now what?
“Acquisition is only half the story”, explains business integration consultant Stuart Crowther; “the real difficulty comes in ensuring a quick and successful integration of the businesses.”
“The integration project must be owned at the top, to give it gravitas and demonstrate its importance compared to other business priorities. The operational or executive board must be responsible for governance of the integration, with department heads leading the project streams.
Building the Plan
“Building a plan that details the required activities to complete integration and deliver the stated benefits produces the Gantt chart. It’s not just a list of activities; it shares understanding of the required actions and engenders buy-in from those responsible for the project.
“The phases of an integration project should always be the same: people; propositions; process and systems. This ensures the most critical and often most difficult element, the people, is addressed first.
“The finished departmental plans need to be validated, by someone with experience of a major integration project, to ensure they contain all the actions required and will deliver the expected synergy savings.
“The plans need to be reviewed weekly to flush out: blockages preventing progress; inter-departmental issues; and threats to synergy savings. The reviews will also help force progress thanks to the competitive nature of departments. But the pace of Integration will be that of the slowest department, so it’s essential departments complete their activities at the same pace.
Telling everyone
“When the acquisition is ready to be announced, senior managers should make presentations at all locations and leave employees with literature that further explains what is happening. Key customers and suppliers should be told in person or over the phone, with an email to all others. Web sites for all impacted businesses should have updates, prepared in advance, ready to go live once initial contacts have been made.
Integration is exciting
“Whilst developing the organisational structure, the senior board must listen carefully to employees and understand their issues, as they will be feeling a loss of control. This is the time for decisive action and clear communication to show staff the benefits of the acquisition. Forget big picture stuff and address the very personal issues that will arise.
Looking outside
“External integration project managers (IPM) have the advantage of having no aspirations of longevity within the business, which generates tough performance-based decisions that challenge long-held views and opinions.
“An external IPM is more cost-effective; able to solve problems and then exit the business once integration is complete. Any individual in the permanent role will seek work post-merger, or lengthen the process to consolidate their position.
“The ultimate tangible target for most business integration projects is the delivery of synergy savings. For an external IPM it is easier to challenge the proposed savings, making the process more like an audit – the approach becomes, “don’t’ just tell me about the savings, show me”.
About the authors
Mark Selby of Baldwins Accountants is a Chartered Accountant with 15 years’ experience advising business owners and managers on a range of matters including business sales, acquisitions, fund-raising and management buy-outs, covering a broad range of sectors from manufacturing and engineering to facilities management and IT services – and just about everything in between.
Baldwins Accountants is one of the Midlands largest, independent family-owned accountancy firms. With over 150 employees in 8 offices across the region, Baldwins has built a reputation for delivering national expertise with local insight.
Stuart Crowther is Managing Director of Specific People, a consulting services company dedicated to helping businesses work through all aspects of integration and organisational change.
Specific People deliver project management excellence through providing experienced project managers, under the direct guidance of Stuart. He also coaches those within an organisation responsible for project management and delivery.