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Acquisitions: not what, or when, but why

Acquisitions have most chance of success if you’re clear why you’re doing them. It sounds obvious, but too often the acquirer fails to realise the synergies they’d priced into their valuation, or the two businesses simply fail to successfully integrate.

That’s not to say acquisitions are not worthwhile. Even in an uncertain economic climate, they can be an effective way for a company to grow by adding scale quickly. And they have the potential to transform the whole business – for example by making it the dominant player within a market, or enabling it to move into new and profitable areas.

But to have the best chance of a successful acquisition, you need to be crystal clear why you’re doing it and what you’re trying to achieve.

“As well as being clear on why you are making the acquisition, you should think through what aspects are of value to you and how you are attributing value to them.”

Be certain of why you are buying the business

The concept of a ‘strategic’ acquisition can often be a woolly one. You should have a clear goal and it will usually be one of the following three:

  • more customers and market share
  • more market opportunity, for example geography, products or capabilities
  • more margin or power in the value chain.

And for any acquisition you should be clear on your motive.  Is it an opportunistic acquisition or is it part of an M&A roadmap?

If it’s the latter and part of a sequential M&A plan, then you should look at the whole picture. Will you be able to deliver synergies in the future? By acquiring business A, for example, does that then give you more power when you negotiate to buy business B? Or might it perhaps prohibit B from selling to you?

Understand which elements have the most value to you

As well as being clear on why you are making the acquisition, you should think through what aspects are of value to you and how you are attributing value to them. It could be people (at any level), products, customers, IP, assets or markets. This should help identify any synergies that will affect your valuation if the process is competitive and clarify what you are taking into account in your pricing.  

Think through the challenges with your goal in mind

Absolute clarity on why you are making a particular acquisition should help you work through potential challenges.

How similar is the target to your business, where are the differences, do the cultures fit, where are the clashes going to arise?

Last year, Livingbridge helped Mortgages Made Easy acquire its closest competitor in order to create a clear market leader in its niche.  Whilst both businesses from an external view were the same size, doing the same thing in the same market and located in close proximity to each other, they were in fact hugely different.  The genesis and cultures of the businesses were different, the revenue models were different, the customer experience and service delivery models were different. 

Differences give rise to challenges but they should not be feared.  By working through them you can take the best in breed from both. Both sides can learn and form a group able to excel within its market.  The differences can become integral to the opportunity.

The key is to think broadly, get expert advice, and don’t be afraid to challenge or change your own business for the better.  And when you think you know the company, go back and check again and work out what you don’t know. Scope your due diligence properly, and challenge your conclusions in key areas of judgment.  If you are working with an investor, they can help.

Using your priorities for detailed integration planning

How will you integrate the target company into your business if the deal goes ahead and how will you deal with any challenges? You should work this out well in advance, and go back to why you’re making the acquisition, and which elements have the most value to you in order to prioritise and plan the integration.

When we worked with Mortgages Made Easy on their acquisition, we spent most of the preparation time on the following three areas:

  • Identifying what was critical to get right as part of the acquisition, for example key people, key customers, key relationships
  • Shaping the integration plan over a clear timeframe from day-one communication to staff through to medium term integration planning
  • Establishing what could be left to untangle once the acquisition had happened.

If you foresee challenges which could be prohibitive, go back to your business case, review your priorities and make sure it continues to stack up.

Making the integration a success needs to be someone’s responsibility. They should understand the drivers behind the acquisition, and have the time to concentrate on it.  If you don’t have the skills within your business to do this, think about recruiting someone who does – even if only on a temporary basis.  They will have the time to do it, focus on the job in hand, and can deliver potentially challenging messages in order to make it happen. 

Make sure you’re ready financially

If the deal is right for you, make sure you have the finance available so you can move fast before someone else does. Having a clear business case, you should know exactly how you’ve reached the price you’re willing to pay. You’ll have a clear view of any synergies that have influenced the valuation and how you are going to realise those synergies. Know your limits and be prepared to walk away if the case for the acquisition no longer stacks up.

Acquisitions can be transformative to growing businesses, but are harder to get right than many people think. If you’re clear why it is you’re making an acquisition and what you are buying that will bring the most value, you’ll put yourself in a stronger position to create a platform for future growth.

 

 

 

 

 

 

At Livingbridge, we see acquisitions as an important enabler of growth for businesses we invest in. We help clarify why it is that an acquisition is right for you and what it is in a target that can bring the most value. We get growth. And we have the experience to help spot potential challenges and support you through the process. Get in touch to find out more.

As a regulated firm we take our responsibilities seriously so please read the important information in our terms alongside the information on this page.

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How we help

Making successful acquisitions

Acquiring other businesses when the time is right can have a transformational effect.  We can provide both the capital and the experience to help make business acquisitions successful. 

Find companies where we've helped with acquisitions