Businesses planning to grow by acquisition need to be ready to take each opportunity, even in these uncertain and challenging times.
At this time of uncertainty, making an acquisition might be the last thing many entrepreneurs are thinking about.
Amid the pandemic fallout, many business leaders will – naturally – be focused on consolidation and basic survival.
Nevertheless, periods of challenge bring opportunity and can also give pause for thought; many businesses will now be reassessing their medium- to long-term ambitions and how to achieve them.
In practice, acquisitions are an important part of many business’s long-term growth strategies – and it’s not always possible to be sure when the right opportunities will come along.
The key is to be well prepared and ready to seize the right opportunity. Making an acquisition could help you scale up more quickly than is possible with organic growth – but deals that go wrong can cause disastrous damage.
Most acquisitions fall into one of two categories.
First, some businesses pursue roll-up or buy-and-build strategies, buying other companies in their industry to increase their market share or give them access to a new market – to international sales, perhaps.
In other cases, businesses make a transformational acquisition they hope will catapult the company forward.
That might mean buying up a rival to secure the number one position in the market. Or it could mean buying a key supplier to build a more vertically integrated business that can optimise margins.
Both types of deal can work well, helping businesses to achieve their growth ambitions. But making an acquisition carries risks too.
The work required represents a significant distraction for a business’s management, potentially to the detriment of its day-to-day operations.
The more transformational deals are especially risky; sometimes, the acquisition proves far less strategically valuable than expected – the effort and resources required to get the deal done and the business integrated are then wasted. This sort of failure can destroy value rather than creating it.
For these reasons, entrepreneurs need to think carefully about whether making acquisitions is the right strategy for their business. If you decide to go for it, it’s crucial to plan ahead.
There is no perfect time to launch an acquisitions strategy.
But even in the current challenging environment, if your business is built on strong foundations, growing nicely and has the time and resources required to do deals, it makes sense to at least look around to see what might be possible.
Equally, some deals are bound to be opportunistic. Even if you’re not explicitly looking for acquisitions, the right business may unexpectedly present itself during this ongoing period of uncertainty.
Attractive businesses may find themselves in difficulties. Their current owners may be looking for a way out.
Either way, be prepared. Make sure you have a very clear idea about the kind of business you would consider buying – and what you would simply rule out.
Think about the criteria you would apply to any potential acquisition: these would include financial metrics but should also encompass other types of value you might be seeking, such as new talent, intellectual property, or a presence in a particular market or product category.
Start to consider how you would fund any deal – do you have finance in place, or would you need to take on additional debt or equity?
Doing this groundwork should help you move more quickly and effectively when you’ve identified a potential acquisition target.
You should have a better idea about the value the target might add, including the value of intangibles such as people and technology, and therefore a better grasp of what might be a realistic price.
You should also be prepared to walk away from an acquisition if you can’t agree terms that reflect your assessment: no deal is better than a bad deal.
The aim with all acquisitions is to make the process as frictionless as possible so that it doesn’t cause unnecessary disruption either to your business or the target company.
The most crucial issue to address is very often human capital: think hard about how to keep your best people on both sides well-informed and engaged, or risk losing key talent.
Finally, while your trusted advisers will provide valuable help throughout the acquisition process – and may even be able to suggest candidates – the ultimate decision about whether to go ahead will remain yours.
Be prepared to challenge yourself: the key test for any deal is whether you can see how it will add real value to your business and don’t be afraid to walk away.
