putting together puzzle pieces - a metaphor for company acquisitions

What to consider when acquiring a new business

If you’re thinking of purchasing a new company to add to your portfolio, it can be difficult to know where to start.

At Dartcell, we’ve been instrumental in countless company mergers and acquisitions (M&As) over the years. Our outsourced finance directors can support the M&A process by:

  • Rigorously analysing the financials of your existing company and the firm you wish to acquire to ensure the numbers make sense in terms of your growth strategy
  • Exploring the tax implications of the acquisition
  • Navigating the various regulatory requirements that may apply to the transaction
  • Modelling and evaluating business valuations
  • Co-ordinating due diligence reviews
  • Structuring finance packages and finding suitable financing options where necessary
  • Carrying out full acquisition accounting

But before you bring us on board, we think it’s important you have a good understanding of the steps that are typically involved in acquiring a new business, and the work you’ll need to do to ensure the purchase goes to plan.

Every acquisition is different. A range of factors will have an impact on how smoothly the purchase goes. However, in our experience, one thing that’s certain is this: decisions that are purely driven by emotion or passion will rarely help you get the results you want. You need to invest in a business that suits your interests and will benefit from your expertise – but when all is said and done, company acquisitions are financial transactions. The heart needs to be set aside, and the head needs to take over; the finer financial details need to be handled with care and diligence to ensure there are no shocks and surprises in the later stages.

The 10 steps you need to follow to successfully acquire a new company

Perhaps you’re new to the company acquisition process. Maybe you’ve purchased a business in the past and feel there were things you would have liked to have done differently. However experienced you are in purchasing new ventures, you will benefit from the 10 tips we have outlined below.

  1. Ask yourself what you want to achieve from buying this new business

What is it that has attracted you to this business in the first place? Is it the people, the culture, or the proposition? Or is it simply the prospect of taking the next step on your corporate journey by adding a new, and potentially profitable, string to your bow?

It could even be a combination of these factors that have led you to this point. But setting aside the buzz that this potential new venture is generating for you, the most important question is: will buying this firm help you take the next step to achieving your short- and long-term goals?

You should always have solid reasons for acquiring a new business. The purchase must make sense in terms of your growth strategy, and it will need to support your overall vision for your portfolio moving forward. If there isn’t a strong business case, it’s best to leave the business be.

  1. Make sure you know exactly what you’re purchasing

It’s easy to get caught up in the excitement of exploring pastures new. However, as part of the acquisition process, you need to study exactly what you will be investing in. This is especially important if the company will take you into new territory and/or different markets. Explore the company’s product or service offerings in great detail; get to know the management team well, and the systems and protocols they use to keep the business in check; and gain an understanding of the competition the business faces, and any challenges or limitations the company faces in its industry.

As an aside, wherever possible, you want to look for synergies with your existing business, either in terms of the expertise offered by its teams, its physical location, or its client base. You should always have at least one thing in common with the venture (and preferably more).

  1. Carry out your due diligence

With the help of your finance professional, you’ll want to look at every aspect of the business to make sure you have a handle on its debts and liabilities before you commit to the purchase. It’s also a good idea to consider the corporate governance principles that have been guiding the business to date. Ask for proof that regular board meetings have taken place; look into how many non-executive directors have been appointed; and scrutinise the company’s books and records to make sure everything is in order. All these factors are important to the smooth-running of a financially healthy company that is prepared for further growth. 

  1. Consider the company’s culture

Culture clashes can have a severe impact on the success and timely completion of your acquisition.

You will be purchasing a company that has already defined its attitudes, its practices, and its shared values. If, after carrying out thorough reviews and due diligence, you find that its values do not align with your own – or you have concerns that the business’ corporate culture is dramatically different to the kind of workplace environment you have shaped within your existing organisation – it could be time to assess what this might mean for inter-company relations.

Remember that international business leaders follow different corporate cultures, too. If you are looking to purchase an overseas business, consider how the current owner’s way of working may affect your operations and fit into your vision for your acquisition.

  1. Look at the impact the acquisition will have on your finances

Is the purchase likely to increase overall revenues and provide stable revenue streams? Or do the current numbers raise concerns about how quickly the company will be able to grow? Be sure to look at your acquisition’s finances from every aspect and consider whether it really makes financial sense to invest.

Better still, ask for support from one of our experienced finance directors. We know precisely what to look for in a company’s accounts as part of the M&A process, and will happily raise queries and liaise with the firm’s current owners on your behalf to ensure you have all the data you need to make an informed decision. 

  1. Get to know the team behind the brand

These are the people you will be working with on a daily basis; the people you will be trusting to run and grow your new acquisition. Get familiar with the company’s management structure, gain an understanding of the company’s existing hierarchy, and identify each person’s unique talents. From there, you can determine whether you can work with what you’ve got, or plan to bring in new members of staff to plug any gaps in knowledge or experience. 

  1. Put together a sensible integration plan

Your acquisition will have a profound effect on your overall commercial strategy. Think about how this new business will interact with your other ventures, and what objectives you expect it to achieve for your wider portfolio in the short-, medium- and longer-term. Our consultants can help you develop a robust integration plan if you are unsure exactly how your resources, assets and employees will need to be combined once you’ve signed on the dotted line. 

  1. Negotiate acquisition terms with the help of a third party

It is absolutely crucial to employ a third party mediator to help you secure the acquisition with the most favourable terms possible. They will be able to manage all negotiations with a level head and a clear focus on achieving the right outcomes for everyone. Again, our finance directors can take on this role. 

  1. Consider how the acquisition will be communicated to the company’s employees

This is the step that many entrepreneurs do not consider when they are acquiring a new business. It can be easy to consider the purchase as nothing more than a transfer of capital for an extra profit-generating vehicle – but there are real people involved in this transaction, and their needs must be considered.

Do not underestimate the impact that your acquisition may have on your staff, not least in how they might feel about their job security, or their opportunities for further professional development. Make sure that the current owners communicate their intentions clearly and leave room for discussion, so everyone feels heard. Talk to your workers about what the acquisition means for them at a practical level. And when the time comes to finalise the contracts, make sure your employees are the first to hear about the changes that are coming. 

  1. Have a deadline in mind for the acquisition – but be prepared to be flexible

Understandably, you will want the acquisition to go through as quickly as possible. However, as is demonstrated by this article, there’s a lot involved in navigating a successful purchase – lots more than we have covered here.

By all means have a rough timeframe in mind for the acquisition process. Just be prepared for issues to arise and deadlines to change!