I’m sure that when you were first brainstorming ideas for your start-up, you never thought that you’d get to the point where you’d be preparing for an acquisition! Every business acquisition is slightly different. However, the principle is more or less the same. Two companies, with separate ownership merge together and operate under the same roof for some kind of strategic advantage. Like any big move in business, you need to make sure this is meticulously planned and executed. Here’s some of the best advice I can give on carrying out a smooth acquisition.
After you’ve decided on the team you’re going to use for the acquisition, you should start focussing your attention on a good target search. Talk to your upper management, and decide on whether an investment banker will find and evaluate targets, or you’ll generate the deal flow within your own company. If you have the budget, I’d go for the first option. Investment bankers have access to many invaluable resources, and can be extremely helpful as counsellors when it comes to difficult fiscal decisions. If you find an ideal company that isn’t up for sale, then don’t shy away! You’d be surprised at the amount of CEOs who can be swayed by a compelling enough offer, showing why the two companies are a good fit for each other.
My next piece of advice is more of a warning; make sure you’re protected against any legal pitfalls which you could run into in the course of the acquisition. You need to make sure you have a trusted, thorough valuation carried out. This is financial due diligence on the part of your accountant. If you skip over this part of the process, and you find out later that you were somehow misled about the company you’re targeting, it can be extremely hard to dig your way out of. Take the time to properly consider your method of payment. Although cash is the more popular method, it can have a big impact on the liquidity of the company afterwards. You also need to brush up on all the relevant transfer of undertakings laws. For a more detailed guide on this, read these employers TUPE guidelines by Peninsula Group.
Finally, spend a decent amount of time pricing the deal. Unfortunately, there’s no set formula or system which will tell you the precise worth of the business you’re targeting. At the end of the day, the value is going to be largely in the eye of the beholder. The market value is obviously one of the indicators. You should also be looking at the capitalisation of the business’s earnings, the discounted cash flow, and the net return on the equity or assets. Aside from that, consider intellectual property, customer lists, branding, and licenses. This isn’t a decision that should be taken lightly, and looking into every last one of these facets will show you just how much the business is worth to you.
Follow these tips, and your plans for acquisition will have a very bright future.