It’s absolutely essential that your acquisition strategy is underpinned by strong principles.
At Stepchange Business Growth we have 4 underlying principles which are designed to repay your investment within 3 years and double its EBITDA within 5 years.
Find unwanted businesses
You will always get a better deal if you find an unwanted business – whether it’s a whole company or a simply a business unit or product range.
Such businesses can be a distraction to the potential Seller and suck cost and time out of their core business and growth strategy.
These businesses can often be found as part of a much larger organisations and the price premium will likely be much lower than that of a wholly owned private entity.
Accounting due diligence
Understanding the finances and inherent risk of the potential acquisition is a must.
Take nothing at face value and carry out detailed due diligence on:
- Statutory Accounts
- Management Accounts
- Budgets and Forecasts
- Billing Rates and Bill of Material costs
- Customer Retention Rate and Customer Concentration
- Returns rates
- Order Book
- Commercial Contracts (including confirmation that underlying profitability ties back to financial information)
- Contingent liabilities (including Tax Schemes and Pensions)
Control all costs
Always “look to improve the bottom line” by controlling and reducing costs and exploiting the efficiencies of bringing the acquisition within your “family”.
Most businesses will benefit from enhanced economies of scale and stronger “buying power” when brought into a larger group.
Medium to long term projects should be identified to identify opportunities to combined, reduce and automate resources (such as administration) across the larger entity.
Expand Market Presence
The ultimate purpose of bringing in an acquisition should be to signifcantly expand your market presence and the right acquisition can help you do this – quickly!
Your “acquisition template” must address how you will expand your market presence. These areas will typically include:
- Product and Service Innovation
- Strategic Customers
- New Skills/ key employees
- Market share (of acquisition)