When it comes to growing your business, you may need to consider whether you want to acquire another business via a takeover, or grow your business organically through the attraction of new customers.
Organic growth tends to be slower form of growth but allows you to be more in control of the growth process and thereby avoid mistakes. It is almost certainly bound to be far cheaper, depending on your marketing strategy.
If however you decide to go for rapid growth then acquisition is the way to go. There are a number of points to consider, and this is by no means a comprehensive list, these are key points that we that we have encountered.
Adding shareholder value
Each acquisition has the potential to maximise shareholder value and returns but it is important that you find the right deal that fits in with your business strategy and helps to maintain your competitive edge. If results indicate that you have peaked in your existing market then you need to identify a target that will provide access to new ones. Careful research should go into identifying the right target.
Due Diligence
To the outside world the target may look an absolute gem but when you dig deeper you may find that there are issues that will impact on their valuation and its fit into your business. How strong is the customer base, what is current trading performance or is there any litigation and claims you need to be aware of. Estimate the potential increases in value and revenue once the deal is completed. Understand the seller/targets appetite for a sale, what is their reason to sell.
Integration
Consider how you will deal with integration of staff and systems. There will be a difference in cultures that will need addressing. Key staff may feel uncertain so you will need to reassure them. There will be differences in systems and processes for example accounting systems. Perhaps existing systems may not be suitable for the enlarged company in which case investment will needed
Funding the acquisition
Does the company have the cash available to pay for it or will it have to borrow. Preparing a forecast will show how this will impact on the enlarged company. If the acquisition involves issuing new shares bear in mind that this will dilute shareholdings and how will existing shareholders feel about that.
Business as normal
The acquisition will take up a lot of your time so do you have the staff in place that you can rely on to keep the existing business going without compromising on financial and non-financial measures. In the event the deal doesn’t go ahead you want to be in a position that allows you to deal with an alternative option.
Using professionals
Undoubtedly there will be various complex accounting, tax and legal issues that will arise. You may not recognise these and you don’t want them coming back to haunt you. It is therefore important to have the right accountants and legal advisers to guide you along the way.
Wisteria have supported many clients with advice in this area and advice on their strategic development. For more information then please contact us on
0208 429 9245 or email us at
[email protected].