Acquisitions from the perspective of both buyer and seller
Done right, acquisitions can transform your business' potential and unlock new possibilities for the future. Whether you're acquiring a company for its intellectual property and equipment, to enter a new geography, or to gain access to a new customer base and workforce.
But what makes a good acquisition proposition? How do you identify and approach a business that you'd like to buy? What's it like as the seller of a business when another company wants to buy you out, and what makes an acquisition a success?
If you want to skip directly to the perspective of the seller, (click here).
From the perspective of the buyer
“The leap of faith is open to everyone.”
- Jo Barry, Managing Director of Platinum Care Solutions Group.
Buying as a small business owner
“I always felt that buying businesses wasn't really for me because I was a small business and I just felt like it was always out of my reach. And it wasn't until I spoke to other people, my accountant firms and other people in business that they said, have you thought about buying a business? And it is the quickest way for me to have grown and it's proven that that's happened.”
- Jo Barry, Managing Director of Platinum Care Solutions Group.
How to determine your acquisition target.
- Ask yourself why you want this. Is it for geographical expansion, intellectual property, access to equipment, a new workforce, or other new possibilities?
- Ask people in the industry. It can be useful to have different perspectives.
- Ask help from accountants to help you find target businesses.
Financing yourself, or looking for external help
“I was much more nervous about using my own money for the first acquisition. I decided to utilize the funding circle to help fund parts of it. It was cheap and very easy to access, and it was an easy way to get the cash quickly. It limited my risk personally from my existing business. And then the second business I self-funded, and I used my own funds for that one.”
- Jo Barry, Managing Director of Platinum Care Solutions Group.
Things to look out for when researching a business
- Staff churn. Too many people leaving the business could be a red flag.
- The numbers. Official numbers should tell you a lot of what you need to know in terms of quality assurance and ratings.
- How long have they been in business? Do they have an established brand and customer following?
- Do they have a solid foundation you can improve on?
- The culture. The two cultures matching each other is vital. Too much of a difference can lead to huge problems with integration.
- Do they align with your culture and values?
“You need to have built a rapport with the business and the people. You need to spend time upfront before you get close to talking about a deal, to understand the business, its culture, and their communication style. You really do need to invest that time and do it with a pretty skeptical lens on. Don’t just listen to the positive news, but understand the nuances of what you hear behind the scenes.”
- Jeremy Fearnley, Azets group Head of Mergers and Acquisitions.
Bad acquisitions
“I think when you first find something, your emotions take over and you're like, right, this is gonna be great. I'm gonna be great. And it just takes somebody to go, actually slow down. Have you thought about this? So I think that my sound boards in my own life and my own management team have always helped me hopefully make all the right decisions in terms of whether it was the right fit for the business.”
- Jo Barry, Managing Director of Platinum Care Solutions Group.
First priorities on day one as a buyer
You must have a really good management team to keep your existing business going, because everything you do day one will be focused on the new coming in. Your priority should always be the staff first. You should be able to take your eyes off the existing business, and leave it in the hands of a capable team.
“My priority is a hundred percent reassurance for staff. Consistent messaging, and looking for those pitfalls, looking for those perfect moments where I can make a difference to somebody, whether that is an increase in pay rises or making their life a bit easier in terms of streamlining processes and bringing in technology.”
- Jo Barry, Managing Director of Platinum Care Solutions Group.
From the perspective of the seller
What is it like as a seller to have someone come to you and say, we want to buy your business?
“It is a big undertaking, starting that conversation with your direct competitor across the street. Doors open between people who feel a certain negativity towards each other. Or you want to come into their market, with them being the platform for growth in that space. Once you get past the emotional side of that, it makes the conversation a lot easier.”
- Jeremy Fearnley, Azets group Head of Mergers and Acquisitions.
What does it take to get ready for a sale?
“There's an adage that I've always followed, that if we grow a successful business, it will either become a great lifestyle business or it's a business attractive for a buyer.”
- Warren Munson, Founder of Inspire Accountants.
- Put in place the right legal contracts. Involve a legal firm to take care of all legal matters. Don’t try to handle things you’re unsure about.
- Address the emotions. It’s difficult both for you and for your employees to sell something you’ve put your blood, sweat, and tears into. Channel the negativity into excitement for the future, and the good changes coming.
- Plan. Have a clear strategy and take risk out of the transaction. Agree on a project plan with the buyer, and create a timeline.
- Deal with key issues in your business. Make sure there are no red flags. Exit some elements, and invest in others that you know will be attractive to your preferred type of buyer. Groom for the sale, and plan for the exit.
- Build a rapport. Ask your buyer’s management team a lot of questions and get to know them. Build a solid rapport over time and build trust with the other party. Make sure you are all aligned, and that your cultures match.
- Communicate. Make sure that the transaction structure meets the objectives of both buyer and seller.
- Have a trusted team. They are your sounding board. Delegate roles, make everyone feel involved, and be completely transparent with your employees.
- Reduce debt.
“Getting your house in order infinitely improves the process because you are constantly reinforcing and giving confidence to the buyer that you know what you're doing, and you run a good business. Building confidence is absolutely vital.”
- Jeremy Fearnley, Azets group Head of Mergers and Acquisitions.
Ideally, should this all be done before the buyer is even involved?
Not necessarily. If your business is not beautifully set up with a bow on top, it will take a little bit longer because you have to prepare the information, but you can do much of it while the buyer is already involved.
Common pitfalls in the early stages of acquisition
“So many times, deals fall over because the seller gets so excited about the deal, and they put all of their attention into the deal, that the core business performance falls, profitability falls, and all of a sudden they're unattractive. They're not the business that the acquirer wanted.”
- Warren Munson, Founder of Inspire Accountants.
“I don't think there's such a thing as a bad acquisition. You can make bad choices, but invariably deals don't fail because you made a bad acquisition. They fail because you didn't integrate it properly. They failed because you were misaligned in terms of the structure that you put in place.”
- Jeremy Fearnley, Azets group Head of Mergers and Acquisitions.
Whether you're on the buyer or seller side, acquisitions present challenges. However, being prepared, conducting thorough research, and effective communication with your team and counterpart are key steps toward a successful deal. Embrace the mixed emotions and transform them into excitement for change and embarking on a new journey.
