Ask the Expert with Lee Humble: How do I pursue a buy and build strategy?

Lee Humble, our Corporate Finance Associate Partner, talks through the acquisition process.

Growth via acquisition is a glamorous means to expand your business but may not be an appropriate strategy for all businesses, with careful planning a pre-requisite.

Business acquisition can be a slow and expensive process with management teams under pressure to identify suitable targets, make an approach, exchange information, agree a valuation and ultimate purchase structure, and then manage the acquisition through to completion. Then comes the even more complicated, and often forgotten, integration process whereby the bringing together of two or more businesses under the same collective group must take place.

The target identification process

The target identification process can take two pathways: the first being more reactive in which buyers wait for targets to present themselves often via an auction led sales process. Or in a more proactive manner, the buyer can identify targets themselves based on an underlying criteria which can include aspects such as service offering, geography served, access to particular markets / IP, and or business size and profitability.

The approach strategy

The approach strategy must also be thorough, with prospective vendors keen to quickly understand the credentials of any buyer. Doing this in a quick and effective way can be the difference between getting to the negotiation table or being ignored by your target.

Valuation and deal structuring

Valuation and deal structuring should also be assessed as early as possible, with key information likely to be exchanged in the lead up to this phase. Business valuation is a loose science and being able to explain your approach is fundamental during a negotiation stage and external input may be needed.

The delivery of a deal

The delivery of a deal may also necessitate external finance and hence the due diligence undertaken during the initial stages of negotiation become even more important once a funder is brought into the equation. As part of their assessment of the risk of the deal each component business will be assessed, along with scrutiny over the management team who will be tasked with successfully bringing each part of the deal together.

Integration planning

Integration planning should feature very early in the planning and approach process and is a vital step during the negotiation and structuring stages. Thought should be given to obvious areas like systems alignment and people management, as well as to the softer and intangible implications for supply chain, customer perception and banking arrangements.

Engage with qualified and experienced advisors

With so much to consider alongside the day job for the tasked individuals the use and engagement of qualified and experienced advisors can be key, and the front-end investment can pay dividends further in the process. The MHA Tait Walker team have historically acted both sell side and buy side and would be happy to assist should a buy and build strategy appeal.