Entrepreneurs’ Toolkit: 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, eg recruiting key staff from your competitor
  • 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

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