Growth through acquisition


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, e.g. 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, environment 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.

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

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