I often get asked about the value of making a small acquisition over growing your own talent through recruitment. There are of course merits in both approaches and a lot depends on what you’re trying to achieve, the depth of your pockets and time.
If you’ve decided that an acquisition is for you then there’s a lot to consider. Here are a selection of things to help you think about an acquisition in the right way.
1. What’s the strategy?
Making an acquisition for the sake of growing is not a strategy. An acquisition only ever makes sense in the context of whether it helps you to achieve your overall long term goals. Goals should of course be time stamped, so an acquisition will make sense if it enables goals to be achieved by the planned time or sooner.
Can you complete an acquisition and integration in the time you could hire the people you need and on board them to be productive?
You need to weigh up the cost of hiring organically and any associated recruitment fees with the cost of an acquisition. Buying a business will normally be much more expensive, unless you find a distressed business or one where the shareholders are ready to exit.
4. Reasons for selling
There are many reasons why people want to sell, they may have reached the limit of their capability to grow the business further without help, they may want to retire or the business may be in distress. Make sure you fully understand the reasons why, it will help in your negotiation and give you confidence you’re not buying a turkey. Buying a distressed business is cheaper but make sure you have the capability and resources to turn it around in a timely fashion. Some careful due diligence is needed here, including client and service line profitability, client survey feedback and talking to key staff.
Normally a mixture of cash and shares in the parent company. If the acquired business is throwing off cash then that working capital can help fund the acquisition and earn out.
6. Strategy over vanity
Opening an office in sunny climes can sound appealing but one better is to consider clients and their needs. Can you acquire new clients in a new location and also service some of your own better as a result?
What size of acquisition makes sense? A smaller team could be easier to integrate, a larger acquisition could have a cultural impact.
Is there a shared vision and values? What are they in business for and how do they go about it. Look for the similarities and see if you can accept the differences.
Look for synergies where you can cross-sell or enter a new sector. Are you looking for fame or fortune clients? What size or type works best? Is there any overdependence on a single client and can you take on that risk comfortably? Do they have the right level of relationships?
Does the reputation of the target sit with the owner/founder or the business brand. How strong is their brand and is there value in it?
by Miles Welch
Partner at Waypoint Partners