Successful acquisitions: they’re all about the ‘why'

Having a succinct list of the must-haves you’re looking for in a target business is vital.
If you’re not clear on this, there will be a thousand questions you need to ask, resulting in a thousand low-quality answers.

It’s much better to focus on the questions that really matter, and we’re helping businesses to get the right answers, with increasingly data-centric methods including transactional-level analysis, predictive modelling and geospatial analysis. These are helping our clients to find suitable target businesses, and to gain a true understanding of the actual profitability and suitability of businesses on their acquisition shortlist.

Also, don’t limit yourself to evaluating businesses that are openly for sale; working up a bespoke off-market approach may convince the owners that the time is right to sell.

Two potential buyers of a target business may arrive at very different valuations – and both may be correct. This is because each of these buyers may have entirely different reasons to consider the acquisition, and therefore be valuing different assets and using different valuation methodologies.

There’s nothing wrong with this. If you’re prioritising some ‘universal’ set of attributes and assets unrelated to your strategic rationale, you’ll end up with a ‘universal’ value that is very different to this business’s particular value to you. To arrive at this more important figure, make sure you’re prioritising the ‘why’ factors that have led you to this acquisition target.

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Nine times out of ten, ‘due diligence’ really means legal and financial checks. And with good reason: you’d be ill-advised to progress without a detailed picture of the target’s legal risks and financial performance.

But beyond this, there’s a critical level of commercial, operational and IT due diligence to consider – and this should also be informed by your strategic rationale.

For example, if the strong growth of the target business is a major attraction for you, it’s vital to have visibility of factors that could threaten it. Or, if a business’s customer base is where you consider its value to lie, you’ll need commercial due diligence to understand those relationships, who controls them, and what the contractual obligations are.
 

A focus on sustainability and environmental factors is becoming a real value-add differentiator for a business’ relationship with its customers and suppliers and, importantly, for attracting and retaining talent. We expect to see an increased impetus on this going forward, becoming a key component of investment criteria. The sustainability and environmental factors within the target entity may pinpoint any liabilities that could potentially impact the acquisition or create value leakage post-acquisition

So it’s all in place, and the acquisition has become a reality. Great.

At this point, remember that, in the majority of cases, any business is really a bunch of people accustomed to working together in a certain way. People distrust change, and in the absence of clear communication and honest dialogue, you’ll find negativity and resistance emerging. Unchecked, this can turn your acquisition into a failure.

Approaching this in the right way is critical: often the parent enterprise can unwittingly destroy the very attributes that attracted them to the acquisition by forgetting these attributes in the heat of the integration process.

Again, by being focused on your strategic rationale during this integration process, you can steer the ship to a much better place.

But don’t leave this thinking until the moment of acquisition: make sure that you’re giving due attention to the integration process from the very start. The path to integration should be a core consideration in evaluating a target from day one – not just when the deal has become a reality.
 

• Have singular strategic clarity and focus from the start – if it isn’t there, question why you’re even thinking of an acquisition
• Know the ideal attributes of a target business for you – ideally before you start eyeing any particular business
• When arriving at a valuation, remember it’s not really a ‘universal’ value you’re after – it’s the value of this target business to you
• Tailor your due diligence around what matters most in relation to your strategic rationale. And don’t forget about the sustainability agenda.
  
  

Don’t leave thinking about integration until the moment of acquisition: make sure that you’re giving due attention to the integration process from the very start.

For more on acquisitions, and many other aspects of growing a private business, download our Moments That Make You guide.