To the uninitiated, planning an acquisition can seem as simple as broad term , checking you can afford the purchase consideration and lining up a solicitor, this approach runs the risk of overlooking the first opportunities to optimise deal outcomes. We highlight four opportunities to improve your approach to acquiring businesses to go beyond the deal and four more tips to close the deal.
First, without a clear strategic rationale reflected in the business case and financial model for the acquisition it is easy to get the valuation wrong, which can result in missed opportunities as well as overpaying. The most common example is where the strategic rationale is for revenue growth but the financial model reflects an overly cautious forecast on revenue but an optimistic modelling cost reduction. We help clients build valuation models and appraise valautions that are aligned to strategic and commercial realities, value creation, affordability and cash flows by drawing on our operational experience of delivering strategic acqusitions.
Secondly, post acquisition integration activities have a significant impact on the performance of the acquired business going forward. Planning immediate post-acquisition activities will give acquirers critical advantages to avoid common issues that quickly underline value, with control and communication high on the agenda. Just as important can be delaying certain integration steps to avoid ‘boiling the ocean’ so that change becomes less controlled and effective. For example, a survey by PwC* of private equity firms reported that 33% regretted prioritising rebranding over customer and talent retention.
Apart from planning for the impact on the acquired business, is is just as important to not assume that the acquiring business has the ability to integrate and assimilate an acquisition for example:
- Additional workloads, personal uncertainty and inevitable disruption an acquisition creates can feel overwhelming, leading to a loss of staff morale.
- Systems and processes may not be able to scale (financial systems and processes are surprisingly prone to this).
Such issues can be anticipated and addressed in a pre-acquisition review to promote more effective integrations. Our operational experience of post-acquisition activities helps clients develop and apply integration plans that focus on value creation and mitigate the risk of walking into a post-acquisition performance dip.
Thirdly, excessive legal and financial due diligence may result in deal failure by slowing deal traction with detailed checks that do not go to value. In many circumstances a set of agreed procedures will address the key risks, especially as additional assurance and protections can be obtained in both the purchase agreement and preparation of the completion accounts. This can help the due diligence focus on more relevant and risk-based considerations, manage the deal process momentum as well as manage cost. Moreover, too often financial due diligence work focuses on historic considerations rather than aligning with the commercial due diligence or even considering the financial model underpining the business case. More positively, due diligence can provide an opportunity to develop a coherent plan for the combined business and assess value creation drivers such as market conditions, operational drivers and capability assessments. We draw on our operational experience of acquisitions and managing commercial teams to develop and help our clients deliver the most relevant approach to due diligence to drive value creation.
Fourth, culture is sometimes described as the key reason why acquisitions fail. In our expereinece culture is not quite the bogeyman of M&A that many make out as many businesses have a positive diversity of cultures. However the assimilation of different cultures will usually lead to greater demands on the leadership team and oblige them to invest more effort in business people to avoid an adverse impact on morale, reduced teamwork, loss of focus and the productivity issues that creates. We do agree that some cultures can be more challenging to integrate, especially where the values and propositions are not aligned. We draw on our operation experience to support not only the people aspects of due diligence but can go beyond the deal to support leadership teams, organisation design and to build teams.
While mindful of the aspects beyond just doing the deal are important, it is also worth considering the following points on effective deal closure:
- Despite acquisitions being inherently opportunistic, it is definitely possible to create your own luck, which mature acquirers will be able to capitalise on. We advise clients to put them in a stronger position to create additional opportunities and to make the most of the ones they get. Conversely, this can help you avoid costly mistakes (the unrecorded benefit of a good advisor).
- Speed can be essential to stay ahead of competitive bidders and close the deal before the window of opportunity closes. At the same time the increased work and risk of a performance dip means that internal resources can be stretched, not least the senior finance team. Decisiveness, drawing on operational and negotiating experience of managing acquisition teams and advisors can be extremely advantageous. We draw on wide experience of deal transactions and working operationally to accelerate deal completion, including complex international transactions to private equity involving multiple jurisdiction (UK, EU, US and Aus) and compliance advisors to meet listing requirements.
- Developing a clear structure for the economic transfer including locked box, normalised working capital reviews, completion scheduling, anticipating conditions precedent and transitional arragements.
- Ensure that legal and financial considerations are effectively aligned including initial and deferred consideration, completion accounts (if relevant) as well as warranties and indemnities. A lack of clarity about the consequences of and technical financial and legal aspects of an acquisition can give rise to costly claw backs or disputes arising at a later date. A common omission is an alingment of the financial, legal and operational issues across between legal drafting, financial considerations, tax planning and operational needs.
How we can help: We work with clients to help identify acquistion targets, agree and complete corporate transactions and go beyond the deal to support operational and strategic delivery. We work collegiately with internal and external stakehodlers best meet the needs of our clients. If you are considering acquisitive growth and would like an initial consultation in confidence to draw on our experience of scores of completed transactions, do get in touch.
