Looking for growth through acquisition?
Saffery Directors Luke Hanratty in High Wycombe and Mark Kilbey in Bournemouth advise on what to expect if you wish to expand through buying another business.
Most successful entrepreneurs reach a tipping point in their business lifecycle where they question if they should continue growing the business organically or purchase another business to fast track their growth.
Buying an established business will come with teething problems as you amalgamate two existing cultures, IT systems and personnel. The seller will want to be reimbursed for the business they have built, so to profit on an acquisition you need to identify where it will have value unique to you – whether in opening a new geographic region or eliminating an insurgent competitor.
Financing the deal
You will need to be able to finance the deal, and this is an area where entrepreneurs can falter. The key point to remember is that business acquisitions are often not entirely conducted in hard cash. Some combination of loan notes, upfront cash and deferred or contingent consideration may be required. The right balance of these depends on what you are trying to achieve, but often it can be beneficial to keep the previous owner of the business working to achieve a successful transition for some time after the deal completes.
Even when significant upfront cash is required, it is often possible to raise finance against the assets of the existing or new business for the deal. A good finance broker can be hugely beneficial in minimising your exposure, while still ensuring sufficient liquid assets remain to complete the deal, including any transaction fees.
Due diligence
Just as failing to undertake proper due diligence when buying a house can lead to buyer’s remorse when leaks in the basement become apparent, so too can rushing into an acquisition without proper investigation.
The price of a business is typically based on a company’s financials; whether that be the market value of assets for a property rental business or future cash flows for a service business. Having confidence in the figures that negotiations are based on helps to avoid costly mistakes later on.
Typically, a prospective buyer should look to obtain financial due diligence, to gain comfort over the figures; tax due diligence, to minimise the risk of unexpected liabilities; and legal due diligence to ensure contracts and IP are correctly titled – you wouldn’t want to buy a business only to subsequently discover that all the contracts have been reassigned.
Entrepreneurs shouldn’t shy away from the opportunity to boost their business through acquisition. Identify the right strategic opportunity, talk to a broker about how to finance it and ensure due diligence is completed by reputable accountancy and legal firms, and you will be in a great position to make a success of the newly expanded business.
If you’re thinking of acquiring another business, please contact either:
Luke Hanratty
Director
High Wycombe
E: [email protected] T: +44 (0)1494 416069
Mark Kilbey
Director
Bournemouth
E: [email protected] T: +44 (0)1202 204 721
