Shaw & Co recently held a free webinar to provide the business community with expert analysis regarding all aspects of the acquisition process, from identifying a target to integration.

Following are some highlights from the event which featured Jim Shaw, CEO & Founder of Shaw & Co; Sean Brophy, Head of Direct Lending at investment managers Triple Point Private Credit; and Adam Kean, Partner in the Corporate team of solicitors BPE. A video of the complete webinar is available here.

Section 1: How to identify a target for acquisition

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Jim Shaw, Shaw & Co: "The first rule when considering an acquisition is to ensure that you have defined your own corporate strategy and core business objectives so you can be completely sure of what an acquisition will actually bring to your business.

The second rule is to precisely define the criteria for your acquisition target before you begin, rather than seeing an opportunity and then trying to tailor your criteria in response. This is a common error. There are a number of key factors to consider when defining your criteria - see our blog for further information.

Rule number three is to then stick to your criteria. Too often we see buyers bending criteria simply because a friend has a business that is for sale. In terms of finding a business to buy then it is a case of hard work and research, It is not a small undertaking – you need to commit time to the task."

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Sean Brophy, Triple Point: "Be crystal clear on your rationale for buying a business. The typical reasons we see for SMEs looking to buy a business are broadening geographical footprint and vertical integration, be it in a current or new market."

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Adam Kean, BPE Solicitors:

"It’s also important define your objectives because, once a deal has been done, that is when the hard work starts. For a SME, if it’s your first acquisition then that can be challenging and daunting enough but if it involves entering a new market then what does that look like? From a legal perspective then you will need to consider things such as different jurisdictions, contracts etc. In short, don’t do a deal for a deal’s sake as it is time consuming and you want it to be a success."

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Section 2: Making an offer and getting the deal done

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Sean Brophy, Triple Point: "The acquirer really needs to take the lead here. They need to be clear on the shape of their offer, what they want to achieve, and to establish realistic deadlines including those regarding due diligence and funding. They also need to be very explicit in outlining the information they need from the business they want to buy.

In terms of making the offer then there’s also a huge amount to do when considering the nature of the vendor. Some will be absent – living on a Portuguese golf course – while others will be intrinsically part of the day to day business. You need to be mindful of relationship handovers, interaction with employees etc, when you’re putting together your offer and plan."

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Adam Kean, BPE Solicitors: "A good transaction timetable is important. For example, heads of terms are there as a useful tool as there is a lot going on in a transaction and those that have the most problems are ones where people are trying to make the deal as they go along. Heads of terms helps everyone focus, certainly from a legal perspective."

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Jim Shaw, Shaw & Co: "It’s harder to be a buyer than a seller. The buyer must have a fully considered and knowledgeable offer that will give the right impression and create confidence, particularly if you have a target that has rejected offers in the past. People can spot an offer that isn’t properly prepared or thought through."

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Section 3: Finding the funding for an acquisition

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Sean Brophy, Triple Point: "Firstly, identify what the right capital structure is for the combined business post transaction in terms of debt and equity. Don’t put the business at risk by trying to leverage too highly. Too many buyers try and get the biggest level of funding when they need to be considering the debt/equity levels.

Early engagement with funders is also important as it helps establish your offer from the outset and also gives the seller confidence that you already have the backers on board. From a lender’s perspective, the things we’ll look for are debt-servicing headroom, sensible forecasting, sensible assumptions on synergies (don’t think that you are going to cut costs quickly and easily). Balanced risk sharing between stakeholders is also important as well as considering management time (the headspace required by senior management during the transaction and after). Remember that deals usually fail due to people issues rather than the deal itself."

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Jim Shaw, Shaw & Co:  "The current market is very competitive and very broad. There are alternative options that you might not get from the high street lenders. It is important to have an adviser who can take you through the options as the lending market is in one of the healthiest states I’ve seen, with the large institutions having lost their dominance in favour of smaller, more agile providers."

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Section 4: Due diligence

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Adam Kean, BPE Solicitors: "On both the financial and legal side it can be seen as merely a process when it actually presents a good opportunity to take an in-depth look at the business target. Prior to this, the offer will largely have been based on assumptions.

It also gives everyone the opportunity to focus on the key questions that need to be answered and for everyone to have an open conversation. There is also a lot of planning that can be done beforehand in terms of the sort of questions stakeholders will have.

Also, consider your risk profile as there will almost certainly be something that jumps out and will need to be mitigated. And finally, don’t be afraid to walk away if it isn’t the deal for you."

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Jim Shaw, Shaw & Co: "Balance is key. A seller has little interest in the DD process as they just want to get the deal done, while a buyer wants to know everything possible before committing. Neither is right. The key is that you look at the major risks involved. If you try to look at every detail then you could jeopardise the whole deal as the whole process will take much longer and the seller will almost certainly begin to suffer from what we call “deal fatigue."

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Section 5: Integrating your acquisition

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Jim Shaw, Shaw & Co: "You need to be thinking about your first 100 days of ownership long before the due diligence process. Within this, 99% of the time it is the people that are key. How to bring everyone onboard with your plans is extremely important, particularly as you will have hitherto had little or no access to the employees on the ground – you will have just been dealing with senior management. Therefore it is vital that your external communications (PR etc) and internal communications (people strategy etc) are in place and ready to go the moment the deal is signed.

When buying a business, synergies with the target are obviously key but planning how you achieve them is critical. They take time and you don’t want to break your new business trying to implement change too quickly.

Earnouts also need to be considered. For example, you may have trouble implementing the changes you want while the owner manager is still retaining a lot if day to day control if you haven’t implemented certain controls. This comes back to making sure you have planned correctly."

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Sean Brophy, Triple Point: "A lot of business that we fund will not only be doing one deal but will be buying a number of businesses as part of a buy and build strategy. The key is to make sure that your integration plans are as simple as possible, from everything to preserving culture of the business you are buying to cost synergies. Earnouts are also hugely important, particularly if you are buying a number of businesses where your fifth acquisition puts the earn out payments to earlier acquisitions at risk. We have actually seen businesses that are unfindable due to their past acquisitions and the liabilities that are in place."

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Adam Kean, BPE Solicitors: "One point is to ensure that you have addressed potential issues before acquisition. The hard work starts after the deal is done and successful integrations happen when all the planning has already been put in place. Having someone driving the plan and making sure the key milestones have been hit is also very important."

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View Webinar

To watch the complete webinar click the video below (viewing time 63 minutes).

We work with UK SMEs and small-cap PLCs that have the ambition to grow their business by acquisition. We often act as an outsourced Corporate Development team helping clients meet their strategic goals through mergers and acquisitions. Our value lies in helping clients build rigour into the acquisition search and execution process. For a confidential, independent, no obligation discussion on how to buy another business, click the 'Let's chat' button.