When you’re seeking to acquire a business it can be tempting to roll your sleeves up and take it on yourself, as you’re probably used to as a business owner.
Most business owners that try to do so are in for a nasty shock. The volume of phone calls, emails and letters needed. The number of knock-backs. The number of opportunities needed to release one serious conversation and the difficulty faced around negotiation and indicative offer.
So, it’s time to ask yourself whether you can deal with the time commitment, searching, contacting, and analysis involved. Do you have the skills, experience, and most importantly, spare time available to undertake this on your own?
The acquisition process is often seen as simply another form of procurement within a business. The reality, however, is very different, and in this article we’ll explain why.
Let’s look at some assumptions made and explain why they are not as they seem:
The acquisition is a numbers game. To have the best chance of acquiring the ideal business, you need to approach as many suitable targets as possible. The assumption is that the best place to look for these targets is online, on listing websites. This is not true. Listing websites and businesses that are ‘on market’ make up a small proportion of UK businesses.
We recently undertook research to discover the extent of this and found that only 2% of active UK businesses were listed for sale. So by assuming that on market is the major route to a successful acquisition you are excluding 98% of UK businesses.
In our experience, a large number of off market businesses are indeed interested in having a conversation regarding acquisition and are willing to entertain an offer. These off-market businesses are harder to identify, and we use a plethora of professional researching services to identify them, but this approach brings great rewards. By increasing the pool of opportunities that you’re choosing from, you vastly increase your chances of acquiring the ideal business.
Business owners receive a lot of cold calls every day, and so a robust process is needed to filter out the good from the bad. Sadly, this coupled with the time commitment that business owners have meant that speaking to the decision-maker within a business is incredibly difficult, even if what you’re offering is a genuine and strategic business proposal.
When working with our acquisition clients, we attempt to contact each individual acquisition target sometimes up to 10 times before we have a conversation with the relevant decision-maker. The time commitment is reasonable if you are only wanting to talk to a handful of opportunities, but if you’re maximising your chances and contacting upwards of 100, that’s a significant time cost.
It’s not just calls either, we adapt our approach to increase our chances of having a conversation, using various professional channels to present our genuine business opportunity.
When you’re looking to acquire a business, you want to discover targets that are healthy and can be grown further. You don’t want to acquire a business that has several bad debts, long-standing legal issues, overdue tax obligations, and problems with staff and management. However, these are all issues that are only discovered upon further investigation and won’t be uncovered within initial conversations with the owners.
Further investigation always needs to be undertaken on potential acquisition opportunities, but it’s much more than asking the questions. When we start analysing potential acquisition targets within the negotiation phase, we have a comprehensive process that covers all areas of the business from liabilities through to management. It’s intrinsically subjective though and requires an experienced third party to lay the facts out for the client to form an opinion. What one person sees as a threat, another sees as an opportunity, so the issue of checking a business’ health is not as easy as you might believe.
The price that you’re willing to offer a business owner to acquire their business is the first step in the offer stage of the process, however, that is not where it stops. There are other issues that need to be discussed and negotiated. For example, you may want the business owner to stay on for a year to help with the transition, but they may want to leave immediately. How will the deal be structured? Will it all be paid upfront, or staggered over a year? These are just two examples of the many matters that need to be considered.
They’re all contentious issues that have the potential to derail a perfectly reasonable business acquisition, and so approaching each of the concerns professionally is vital.
When the process is laid out, it becomes a larger and multifaceted project. So, to give it the best chance of completing the need for an external advisor to manage and keep on top of things is extremely important.
If you’re looking to buy a business and want to understand more about what a professional advisor can offer you, then speak to the independent experts, Unloq. We can help you acquire the perfect business with our independent expertise and knowledge. Call us on 01962 609 000 for a confidential conversation.
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