Acquisition isn’t simply about a land grab based on similar business interests; genuine and positive growth can be achieved by investing in companies which contribute to the sales pipeline or reposition a company so that bigger opportunities or new sectors can be contested.
In my view, the first step on the acquisition trail is the most important – namely, how do you fund a purchase?
At Paperhat Group, we have been very fortunate to work with a financial partner which shares our vision however securing finance is a much tougher job than showing up with a decent business plan and hoping a bank will like what it sees.
1. Show a potential lender that your company is in good shape: No one will fund anyone to run a bigger company if their current one isn’t doing well. An existing business should not only be performing positively, it should have done so for a clearly sustained period. Banks will look closely at this and it is wise to highlight all aspects of a successful track record.
2. Don’t develop a business plan, create an acquisition strategy: When buying a new business be very clear as to the rationale behind the purchase – why do you want this particular company, what you expect of it and how you will manage the process of integration. This process is both intensive and potentially can be a distraction from the ‘day job’ of managing an existing enterprise. Failure to prepare to manage this expansion means that you could be putting two businesses at risk.
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3. Strategise your target purchase(s) with care: Expanding a business through acquisition opens up a wealth of opportunities including the ability to offer a wider range of services and richer mix of clients as well as entry into new markets, sectors and client types. If you can demonstrate clearly why the target acquisition adds tangible value to your core business purpose, lenders will have a lot more faith in your vision – both for this deal and the future
4. Take the management team with you: The prospect of expanding through acquisition should excite your board – it is something they will want on their CV and should represent a step up for them professionally simply by being part of a bigger commercial entity. That said you may find that not everyone shares the vision; listen to any concerns and determine whether a genuine objection is being voiced.
If not then you may have some hard thinking to do as to how you overcome this particular hurdle. Not only is the acquisition process markedly harder if you don’t have your team’s full support but potential lenders will be judging your team’s ability to execute your strategy and will quickly spot any weak links in the chain
5. Invest in the best professional advisors: Even the most experienced business leader would do well to secure the services of consultants when developing an acquisition strategy as they will highlight considerations beyond those identified by your board. From a financer’s viewpoint, external professional help is a sign of serious intent and, in all likelihood, a more rounded strategy.
6. Consider your finance options: Banks are flexible at the moment so really analyse what loans are available. The sorts of things which should be explored are repayment terms, including the duration of loans. Additionally consideration should be given to whether this money is funding one deal or has the potential to be extended to underwrite several over a period of time. Securing finance is a lengthy process so there is sound rationale in doing a multiple purchase deal up front.
Whilst this is in no way an absolute blueprint for all businesses approaching loans, it is based on hard-earned experience. Paperhat Group is now on its ninth business acquisition and this approach has taken it from two employees to 1,350 and seen our turnover quadruple. By adopting this approach, five banks offered to underwrite our business expansion which put the board in the happy position of choosing who we wanted to work with, which does a lot to help your negotiating position.