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Your Preparation Guide for Acquiring a Business

“By failing to prepare, you are preparing to fail”. As quotes go, it’s one that applies pretty well across a range of situations we face in life and in operating a business, not the least of which when looking at business acquisitions as part of existing business growth plans. With all of the different factors that should help form your decision, and considering how crucial it is that an acquisition is successful, not planning properly can put the whole operation in jeopardy before you even get started. To help you take the first steps, here are some things to look at before even thinking about putting pen to paper on an acquisition deal.

Strategy

The first one is pretty simple – why are you looking at acquiring the business? You need to articulate this and identify the pros and cons of how an acquisition fits into your strategy. When looking at this, you should ideally be able to demonstrate the before, during and after acquisition strategy expectations.

Cultural Fit and Team Members

This is perhaps the most crucial factor which is often left as a consideration after the “numbers”. When preparing for an acquisition, the congruence (or lack of) between the culture and workplace environment of the acquiring business compared to their target is incredibly important. Importance is placed on this because the human capital involved in one business being absorbed into another is a significant factor in its success or failure. The combined knowledge and skills of the two merging groups of employees should complement and enhance one another, and the best parts of both groups should come to the fore. Trying to establish a clear vision of the workplace culture of another business, from afar, is by no means easy. It takes time and genuine curiosity, mixing with and getting to know the other group, and asking the right questions regarding the social and cultural constructs within the acquisition target; and most of all – open and honest communication. The successful crossover and integration of the two workplace cultures can be measured, in part, by the retention rate of both teams, and the acquiring firm would be remiss if they did not duly consider the employees of the target company.

Financial Matters

As a business acquisition is largely financially motivated, particularly as a way to supplement organic growth, it’s sensible to make finances a priority. Therefore, understanding those finances in advance of the acquisition is key.

As far as your target is concerned, a full financial due diligence should be undertaken, looking at areas like revenue; client/customer profile; and cash generation & profitability. Conducting such a thorough and rigorous due diligence is not only time-consuming, but is also best left to the professionals. Engaging a professional due diligence provider, experienced accountant and/or business adviser may provide a much more rigorous and accurate outcome, after which you’ll have a clearer picture of the business you’re hoping to acquire – and therefore a stronger toolkit with which to make a better decision.

Client/Customer Processes

Processes need to ensure that the client experience is to be at least comparable, preferably enhanced, compared to what the client or customer has currently. To this end, a deep understanding of the target company’s processes and how they interact with clients – and how that aligns to your own processes – is key.  In addition, most clients don’t want to feel that they are a commodity to be bought and sold. Here are some considerations to make:

• Do you look to align these systems from day 1 or a later date?
• How do you communicate the changes and demonstrate enhanced value?
• Who does the communicating?
• How do you manage any issues?

You’ll need to be able to answer these questions at the very least amongst the myriad of considerations around ensuring a successful client experience.

Internal Processes

Taking on a new business (and any employees that come with it) requires careful consideration and planning – this is where sound internal processes come in. Having clear actions, outcomes and responsibilities in place before anything is done helps to ensure that nothing is missed, and everything runs as smoothly as possible. Some examples of processes to establish when preparing for an acquisition include consolidating payroll processes; preparing on-boarding procedures for new staff members; and creating an equipment checklist to have everything necessary ready for new starters.

On the subject of processes, the incorporation of a new business might bring with it some existing processes that benefit the acquiring company. For instance, there may be a procedure in place for an internal activity that works more efficiently and cost-effectively within the acquisition target that the acquirer can use themselves. Not only does this improve efficiency within the business overall, the familiarity of an existing process may help new employees settle into their new roles better.

Closing Thoughts

While the above just scratches the surface of the different factors to consider when looking to acquire a business, it is important to remember that the financial, cultural and operational synergies (or lack of) between an acquirer and a target can make or break an acquisition. Due consideration has to be made well in advance of anything being signed off, and it is certainly not something that should be taken lightly. What’s more, savvy business owners looking to acquire a business have often found greater success and a more thorough preparation process by engaging the services of financial professionals. If you’re looking to grow your business through acquisition, don’t hesitate to get in touch with Incisive Due Diligence.

written by:

Dominic Rollerson

Dominic has over 25 years of experience in working alongside business owners in both Australia and the United Kingdom including a number of years working in commerce. With a high level of expertise in business structuring, business acquisitions/disposals and business planning, coupled with a broad range of experience in dealing with businesses from start-ups through to listed companies, on both an Australian and international basis, Dominic has amassed a wealth of experience in understanding what makes a great business and focusses on partnering with businesses in an action focussed, yet light hearted manner.
Dominic is a member of the Chartered Institute of Accountants of Australia, a Chartered Tax Advisor, a Fellow of the Association of Chartered Certified Accountants, a Fellow of the Chartered Institute of Secretaries and a Fellow of the Governance Institute of Australia.