Growth through acquisition.
The challenge.
While growth can be achieved quickly by making acquisitions, the statistics show that most acquisitions do not ultimately create value for shareholders.
The solutions.
Acquisition versus organic growth
Identify the key reasons for wanting to grow through acquisition (eg to acquire new products, services, markets, people, technology, IP).
Consider the alternatives, e.g. targeting key staff employed by 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. What do you really need to buy?
Prepare a detailed acquisition mandate and match it to your target.
Be wholly satisfied that you have the skills to run the combined businesses post-acquisition.
Carry out a valuation and set your acquisition parameters and limits.
Ensure you have the financial resources to complete the deal and sustain the combined businesses.
Identify synergies before proceeding
Consider the proposed structure of the acquisition.
Be confident that synergies is available so that 2+2=5.
Avoid diversification, as this rarely presents opportunities for synergy.
Ensure that apparent cost savings are deliverable and assess the financial implications.
Consult your internal teams to identify additional opportunities.
Don’t cut corners with due diligence
Commercial due diligence will often, but not always, be done by your own team.
Commission 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 to include IT, IP, pensions, environment and similar areas.
Be meticulous with post-transaction integration
Prepare and implement a post-acquisition integration plan.
Don’t ignore the cultural sensitivities that invariably arise through business combinations.
Focus on management and financial information systems and improve them as a priority if needed.
Don’t underestimate the management time which may be required to deal with unexpected challenges.
Don’t run out of cash!