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Growth by acquisition – how to get it right

20 Nov 2018

Ariel shot of a red paper boat veering away from white paper boatsOrganic growth has its benefits but for fast growth in a market, an acquisition is a highly attractive option.

Companies which have the financial resources or funding for an acquisition have the opportunity to gain a competitive advantage over their rivals. Whilst this can be a complex strategy to unravel in just a single article, here are some ‘do’s and don’ts’ to consider before beginning such a strategy.


Define your ‘why and what’

A strategy needs to start with your company conducting a thorough review to understand its strengths and weaknesses and decide what it wants to gain from the merger or acquisition.  

Whilst it can be easy to presume that an organisation which is seeking to implement an acquisition strategy is looking for an immediate improvement in its revenue, it can also be for other reasons such as increasing its services, acquiring new customers, moving into new markets or gaining access to a workforce with a specialist skill-set.

Getting this initial step right is essential, as it directly impacts on the next stage – finding suitable organisations to acquire or to merge with.  

Find an ideal match for your company

One of the key elements of a successful acquisition strategy is identifying companies that match your requirements and will add value to your own.

You can choose to undertake the search yourself, which will involve days of painstaking research, or you can hire an external advisor to assist you with the search. The benefit of doing this is that the advisor can use their knowledge and call upon their contacts to seek out organisations who may not be openly seeking a buyer – these are often the most ideal targets.

Plan and prepare your company for growth

A crucial question to address when implementing an acquisition strategy is: Is your company ready to grow? Avondale’s research has shown that growing companies often struggle with the transition of becoming bigger due to lack of preparation. What is going to happen on day one or two and all the remaining days after the acquisition?

As the saying goes, only the toughest survive. So, an organisation that is planning to go through an acquisition process needs to be prepared to make tough decisions such as, making changes to the company’s leadership structure.

Digital transformation should also play a key part in readying the company for growth. As well as investing in personnel development, organisations should be focused on investing in technology to improve efficiency.


Ignore foreign markets

According to Avondale’s Strategic M&A Outlook Spring / Summer 2018 report, organisations that look to take part in international acquisitions have the potential to achieve greater long-term value.

Managing the process of an international acquisition will require additional resources and time, but the lack of local opportunities and the uncertainty that is surrounding the UK’s relationship with Europe following Brexit is making international acquisitions more attractive to many business leaders.

As well as gaining access to new markets and new customers, some other benefits of an international acquisition could be that you gain access to a workforce with niche skills, or established production facilities or developed distribution networks. 

On the downside, successfully navigating an international acquisition needs someone who has considerable knowledge of the tax, regulatory and compliance requirements of the market you are entering.

Manage it all yourself

Implementing an acquisition strategy is complex and time-consuming. You will be asked to make many difficult decisions which can cause delays and be the cause of conflict. An external acquisition advisor will help to keep the negotiations on track and maintain a harmonious relationship between all parties involved in the process.

An acquisition advisor can also help address questions or concerns that you may not be comfortable asking the other party directly. Most importantly, an external advisor will ensure that the momentum of the process doesn’t slow down. People can easily get hung up on small details, which can lead to delays or uncertainty about aspects of the deal.

Lose momentum once the deal is done

You may feel like celebrating once the acquisition has been agreed and the paperwork signed, but it’s important at this stage to not take your eye off the ball.

Avondale points out that it is at this stage that mergers or acquisitions typically struggle or fail. And, the reason they struggle or fail is due to the lack of a robust integration strategy.

Kevin Uphill, Chairman of Avondale says that “An integration strategy doesn’t need to be complex, but it does need to thorough. The initial step is building a strong integration team that includes members from both organisations and ideally representatives from all departments.”

The integration team will be responsible for conducting a risk assessment to identify any problem areas, build a risk prevention plan and continuously monitor the process to ensure it achieves what is detailed in the integration plan.

Acquiring a company can be a quicker route to growth when compared to organic growth, however, a strategic approach and a detailed plan are imperative in order to minimise any risks and to increase the chances of the acquisition succeeding.

Whatever your next strategic move - business acquisition or business sale - careful preparation and expertise is critical to success. Avondale, the IoD’s preferred partner of business sales, acquisitions and strategic services, provides IoD members with expert advice and support to ensure you are fully prepared to reap maximum benefit.

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