How to Acquire Businesses Successfully

M&A is notoriously difficult to get right, but increasingly is still the best option for seizing opportunities by scaling up. It’s not just why and where to acquire, but how that matters. The Alchemists Forum is collaborating with international specialists CapEQ to give a few pointers to help you get your acquisition approach right.

The triggers for M&A are rarely a single event, but typically a ‘perfect storm’ of combined factors, from supply chain costs and skills shortages to technology disruption and customer diversification. In other cases, acquisitions are driven by professional investors realising the depth of opportunity in an ‘old fashioned’ marketplace – as seen in the ongoing consolidation of vets and dentists.

As merger-mania reshapes whole industries, egos, vanity and fear-of-missing-out can creep into decision-making – regularly resulting in overpaying for targets, boardroom unrest, and an unwieldy corporate structure.

What’s the problem?

Around 50-60% of all M&A transactions fail shortly after completion, according to research by Harvard Business Review and McKinsey. This is destructive both for the acquired company and the acquirer/sponsor.

The most common failure is a lack of long-term thinking – management sees the transaction ‘structure’ as the focal point in M&A, while not paying enough attention to integrating the target company into the group. This approach often leads to a loss of synergy benefits, management time wasted trying to fix emerging issues, and of course the value from the transaction.

Three ways to ensure acquisition success

Broadly there are three M&A strategies you should consider:

Programmatic

·  Where you undertake to complete a small number of transactions on an annual basis. You ensure that each transaction fits within your own growth strategy. The transactions are planned, strategised and organised to complete within a known timeframe.

·  Crucially, programmatic M&A ensures the allocation of management time to “post integration” work in manageable “bite size” chunks.

·  The downside of programmatic M&A is that it takes more management time in the early stages, and it depends on the business having a fully evolved commercial strategy already in place.

Transformative

·  This is where you undertake very few, but very large transactions with the goal to comprehensively transform the future of the business

·  It has the potential to offer the quickest upsides but carries significant risk. Transformative M&A is by far the hardest transaction to deliver successfully as it requires not only the integration of processes but also culture and working practices.

·  It has the highest failure rate of all M&A when viewed over the medium and long term. Executives are often enticed by generating attractive headlines about them personally and large egos often make an appearance in these types of transactions.

Opportunistic

·  This is the most common form of acquisition. Buyers either spot an opportunity or are approached (often by an intermediary). It has the potential to be highly successful and there is always a chance of a germ turning up.

·  It can be chaotic for management teams as the transactions aren’t planned and management time is rarely available “on tap”. Of course, it’s also the most unreliable of M&A strategies as you have no control over when transactions will take place.

What’s the best route for you?

While no acquisition is risk-free, most risks can be mitigated with some careful pre-planning. Whether this is done in a boardroom with in-house M&A executives working with impartial corporate finance advisors, or among a peer group of business leaders, it is vital to clarify priorities, assess risk appetite, and plan integration.

The Alchemists Forum has guided many members through the arduous process of buying businesses, providing expert advice and an individual steer on the intricacies of both the financial aspects and the personal implications of making such a big decision.  We believe that being in a room with those who walk in your shoes every day is “the difference that makes a difference.”

Let the Alchemists Forum help you make the best decision on buying a business in 2022. Contact Alan Branagh alan@alchemistsforum.com for more information.

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