Ask the Expert with Lee Humble: Do you know what you are buying?

This article was written by Lee Humble

M&A markets have been moving at break-neck pace for some time and, as an adviser, I work with multiple clients who have braved COVID conditions and have emerged in good shape, with a large number now pursuing acquisitive growth strategies.

Several of those parties have acquired businesses previously and have a good awareness of the process and prevailing risks, and naturally those who have not executed such a strategy can often pursue an objective with limited awareness of what to do and how to proceed.

An acquisition can be a great way to grow your business

For those looking to acquire right now I would advise them that acquisitions can be a great means to grow your business by providing access to new products / skills / services, allowing you to penetrate new markets and territories, providing access to a supply chain you may not possess at present, provide extra band width and infrastructure generally and allow you to tender for new works with a new type of customer – the list goes on. Synergies and integration planning are items which should be considered at the inception of negotiations and crucially should be reassessed throughout the process.

Know why you are acquiring a business

Key to the success of an acquisition is your purpose – why do you want to acquire and what is the reason why a specific target company is the object of your desire. The commercial reasoning can often appear obvious – but it is important to also consider the wider implications. An example being the reaction of key customers and suppliers who may often have a legal entitlement to terminate relationships upon a change of control. 

How well has the target business traded over the last 12 months?

From a financial standpoint, it is now even more imperative to look at trading performance- how has the target truly performed over the last twelve months? Can you see how COVID has impacted the business, in both positive and negative ways. Is the supply chain still intact, what action has been taken – from the use of the job retention scheme through to accessing government supported lending and use of tax deferral? Due diligence around this can be exceptionally revealing and can also guide the post transaction planning which you will need to consider. Some of the learnings may also guide change in your existing business; systems mapping and data integration being areas where common practices may provide significant benefits across the enlarged post transaction group.

Understand the risks

Similarly, during your diligence process you will grasp a better handle on the true risks residing in the target company. Knowing where those risks sit will ultimately then allow you to set the most optimal structure for acquisition purposes – as well as guiding your solicitors and other advisers through the legal documentation aspect of the process.

In short, acquisitive growth can be a great means to expand your business and current markets are rife with such activity. Understanding, agreeing, and articulating the rationale behind why such an objective is being followed will be key and seeking advice from seasoned dealmakers can yield huge advantages.

Contact

For further advice, please contact lee.humble@taitwalker.co.uk

Source: Insider