Open for acquisitions? Which approach will you take?
7th March 2023
Mark Neath See profile
There are many good reasons that a strategy of acquisition may be right for your business, whether that is as a short-cut to growth, or to access products, key people or new markets.
Assuming that you are open to making an acquisition as part of your strategic plan, the next question is, just how open are you?
If opportunities come your way, you are prepared to look at them.
Many businesses are marketed by brokers or Corporate Finance advisers who will scan a seller’s market to identify possible buyers and try to make contact with you. Your accountant or bank manager might know someone looking to sell and put you in touch. Or a competitor might call you up out of the blue and ask if you want to buy them out.
An acquisition may therefore come to you without you having to do anything.
The drawback with being completely reactive about it, is that opportunities might not come along after all.
Also, if they do, and you are not ready to act, you could find yourself in a competitive bidding process, whilst trying to sort out your funding and appoint advisers, and as is the way with most things, at a time which isn’t quite right.
You may therefore choose to be a bit more active about it.
Talk to your bank and explore your potential funding capacity, so that you are prepared to move should something interesting come up.
Let your accountant or Corporate Finance adviser know that you are open to looking at sales opportunities that they might have and do the same with other accountants with a Corporate Finance offering.
You could get yourself on their mailing lists and those of some business brokers.
This way, you are likely to see many more opportunities, but still aren’t having to make much commitment. However, you will only get to see the businesses which are on the market having already decided to sell. This is inevitably a small sub-set of all businesses in your sector and not necessarily going to be the ideal ones that you would really like to get hold of.
Commission a Corporate Finance adviser to build a list of target companies that meet your criteria and to contact them (confidentially) on your behalf and explore their interest in selling.
If you have ever been surprised to see a competitor has been bought by a larger company when you didn’t even know they were thinking of selling, this is probably what happened.
And if you actually felt a bit disappointed by this because that company would have been a good fit for yours, then a proactive approach could have prevented you from missing the chance.
We would advise any ambitious business to at least take the middle ground semi-active approach and make themselves known to Corporate Finance firms and brokers. Also speak with your own advisers and have a loose plan to be able to respond if and when an interesting opportunity comes up. There is nothing to lose in doing so, and for the range of reasons we’ve discussed above, maybe a lot to gain.
If you are committed to an acquisition strategy though, then proactively targeting companies is the best route:
- A Corporate Finance adviser will be able to work with you to understand your strategic objectives and how the acquisition fits with this.
- Using this knowledge, they will work with you to determine the type of business required and to define some search criteria.
- This would include factors such as size, geographical location, stage of development, management, product/service range and of course profitability and value.
- A prospecting list will then be agreed with you and the CF adviser will then anonymously reach out to the shortlist on your behalf.
- Such a targeted approach can help you to find the right business at the right time.
Of course there is no guarantee that a deal can be agreed or that the target will be willing to sell at all, but you have a far greater chance of finding out by asking them, than by waiting and hoping that someone suitable comes to you.