ng the
Acquisition ’t be Left to Chance
s & Acquisitions, Smith & Williamsons
Operating synergies
Acquisitions can often deliver cost benefits, for example, when buying a manufacturing plant or a service which is currently outsourced. This generally gives only a one-off benefit - you can only cut the cost once. So care needs to be taken: are the savings real or are there likely to be unforeseen, compensating costs?
The case for acquisition
Once the decision to start acquiring has been made, a business should develop acquisition criteria that reflect its commercial objectives. The purpose of the acquisition criteria is to verify and document the thought processes behind the acquisition strategy.
Once completed, the criteria can be circulated to professional advisers and contacts to generate ideas for acquisition targets. Equally the targets may be well known to the purchaser - indeed they ought to be if the target operates in the same area.
So what needs to be covered in the acquisition criteria?
Business activity The criteria need to cover the types of activity you’re looking for. The less general the criteria, the greater the chance of success. Advisers generally respond better when they can easily match the criteria to a company they are advising.
Management
Management is a crucial part of any acquisition strategy. Many businesses are sold by owners looking to retire - so will need senior management input going forward. The target may have junior management who are able to step forward under the new regime. Thus it is often useful to state that there will be opportunities for them in the future.
Size
Size is one of the main criteria for the buying business. Too small and the acquisition is unlikely to be worth the costs and management time. Too big and it will unbalance the existing business.
Location
This is particularly important in an acquisition to increase market share in a specified area, or if the buyer
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