If you are serious about acquiring a business, you need to ensure that you maximise your chances of realising a successful acquisition. An extensive search and pragmatic approach will significantly increase the likelihood of both sourcing and completing a deal.
1. Full-Market Deal Origination
Often, serious and capable acquirers only look to source opportunities that are listed for sale, classed as ‘on-market’. Whilst in certain sectors there will be a reasonable number of opportunities available at any given time, on-market misleads as to the quality and quantity of available business acquisitions.
Even if you have identified a suitable on-market opportunity, increasing your opportunity flow with ‘off-market’ deal sourcing is vital for the most serious of acquirers. This involves finding target companies that fit your criteria, but as far as you are aware, are not currently listed for sale.
This is a time consuming and challenging process. Nevertheless, the results will bolster your choices and increase your chances of buying a business.
2. Flexible Search Profile
A search profile needs to be comprehensive and well-formulated, but there needs to be some degree of flexibility in regard to your specific criteria. For instance, a solid acquisition opportunity may not meet all of your criteria; it may be located slightly outside of your target area, or its turnover reliant on a small number of large clients. Whilst these are negatives, it is highly unlikely that an opportunity will tick all of the boxes. You may be waiting for the ideal and perfect opportunity to never arise.
3. Realistic and Fair Valuation Methods
Once you have identified a number of suitable and attractive acquisition opportunities, it is important to construct fair and reasonable business valuations. In addition to this, if you are offering little up-front or significant and unrealistic clauses for potential earn outs, your offer is likely to be unattractive to the vendor.
Furthermore, business owners are likely to have varying exit plans. Some may wish to leave the company on completion, whilst others will want to stay on, at least for a transitional period. Therefore, it is important to be flexible when it comes to negotiating the exit strategy of the existing business owner(s).
4. Well Prepared Funding
It is vital that you have the acquisition finance in place. If you have the capital from your own funds or cash flow, this needs to be easily accessible. On the other hand, if you are looking to raise finance to fund part of the acquisition, this needs to be in place and agreed upon, at least in principle, before heads of terms.
Failure to have the funding ready may frustrate the seller and reduce your chances of a successful acquisition.
This is a common factor in why agreed acquisitions fail.
5. Realistic Expectations on Timing
Once you have reached heads of terms, the progress through due diligence to completion will usually last between 1-3 months. Often based on the responsiveness (0r lack thereof) of advisors on one or other side.
Whilst this process can sometimes be shorter or significantly longer, it is important that you are honest, punctual, and in general, realistic in regards to deadlines, when in the due diligence process.
Conclusion
As detailed above, it is vital that you are realistic and capable when it comes to company acquisition, but you also need to be able to commit significant time and resources to the process.
If you are interested in exploring how we can assist and increase your chances of acquiring a business, contact us on 01962 609 000.
