Thinking of acquiring a business? Gerry Halpenny and James Byrne share some good advice to help the process run as smoothly as possible.
A well-managed mergers and acquisitions process can pay dividends. However value is often destroyed by lack of familiarity with local markets and legal environments or when potential synergies turn into doubled workloads. Here are some tips to help improve the prospect of a successful acquisition.
- Make sure that the acquisition aligns with your corporate strategy for expansion. Some good questions to ask include:
- Are the markets and the production operations similar or complementary?
- What is the target’s purchasing and market power?
- Can your strategy work in the target’s legal environment?
- What are the cultural differences in the target organisation?
- Can you maintain sufficient working capital and potential profitability?
- Don’t regard heads of terms or letters of intent as a formality. While typically not binding, they do set out the playing field for future negotiations. It is at this stage that the main commercial terms and likely structure of the deal are usually determined. Once they are set to paper, it can be difficult to negotiate significant changes, especially if there are a number of potential purchasers.
- Be aware of any underlying issues that might affect your decision to buy and be prepared to withdraw from the process and accept sunk costs if the deal is unlikely to be profitable.
- Due diligence checks should be completed before the deal. Review pro-forma and management accounts for planned cash flows and revenues as this will allow you to plan better for post-acquisition financial management.
- Develop a post-acquisition strategy to capitalise on the benefits of the acquisition. As a minimum, the aim should always be to increase consolidated profits by the costs of the acquisition to create a net return on the acquisition. A careful focus on integration issues can deliver great benefits in the post-acquisition phase.
With foresight and planning, you can develop a strategy, assess the strengths and weaknesses of the proposed acquisition, put in place the required protections and help to set up systems that will lead to a more valuable and successful acquisition for you and your company.