You are considering buying a company but is it really the right move for your business? Before embarking on an acquisition, there are a series of questions we ask our clients before they ‘deep dive’ into the process.
Why buy this company and why buy it now?
- Is there a market/opportunity that makes this acquisition essential?
- Is this a compelling target? What is their uniqueness? Have you looked at other products/providers?
- What is the size of the market and what market share does the acquisition target hold?
- Does it fit in with your current (growth) strategy?
- To what level can the business be grown? What are the biggest challenges to growth?
- Who are the industry leaders? Is the company considered a market leader?
- Does the product or service have a life cycle, or seasonality?
- What would your customers and competitors say this business does best?
- What are the possible implications on your business a year from now if you don’t make the acquisition?
Do you know everything you need to know about the seller?
- How and why was the business started?
- Why is the business for sale? What is the seller actually selling?
- What keeps the seller awake at night?
- Does the seller own the company outright or are there other shareholders who want to sell?
Is this in line with your investment strategy?
- Does the acquisition fit or conflict with your growth strategy?
- Are you able to fund this acquisition using internal capital or will you need to seek outside funding?
- What if the deal is not all cash is that a problem?
- If you need to seek outside funding, what is the message you will deliver to your debt (bank) provider or equity (shareholders) provider when you seek funding for the acquisition from them?
- Could you generate a higher return on investment with the capital by investing in organic rather than acquisition growth?
Are any reputational issues addressed?
- Are there reputational issues affecting the acquisition?
- Are there any market or sector specific regulatory or ownership restrictions that would make such an acquisition difficult and/or time consuming?
- If you fail to close the transaction, will there be an adverse impact to your current business model? Would it result in negative PR? Could a competitor use it against you in discussions with future customers?
What is the quality of the earnings?
- What synergy benefits exist?
- Have they provided management accounts alongside the P&L and Balance Sheet?
- How far into their financial year are they? How certain are they of achieving their projection for this or next year’s forecasted financials?
- Have they provided any assumptions for future projected earnings? What level of detail do this assumptions go to? Have they put together a comprehensive pipeline of future customers and/or future sales?
Is this an opportunity for good returns?
- Is the expected purchase price reasonable?
- Is finance to fund the acquisition available? If you are seeking bank funding are the repayments manageable for your (combined) business?
- Do returns depend on synergies? If so, are they achievable within a realistic timeframe?
- How comfortable are you with the predicted sales revenue by business line/country?
- Will the acquisition block other expansion options?
Are the plans and projections realistic?
- Has the company demonstrated: past forecasting/budgeting accuracy; solidity of assumptions; contracted future earnings; cyclical exposure; quality of management, etc.?
- What is within the target company’s control?
- What is outside the target company’s control?
- Are there any key dependencies (e.g. suppliers, customers, third parties)?
How well do you know the management team?
- What is the existing management team’s track record?
- Do they have a good reputation in their industry?
- Are your cultural values aligned?
- Is the team capable of delivering the projected revenue and profit growth, synergies, and running a larger, expanded business?
- Who will run the business and what ownership considerations have been discussed?
- Are all the management team looking to continue or are there key members who are not looking post acquisition?
Exit opportunity, ease and timing?
- Is the aim to merge the acquisition or run it as a free-standing entity?
- How would this entity play in any future monetised transaction?
- Can it impact/influence beyond its scope?
Are there any matters requiring further due diligence investigation?
- Have you taken references?
- What are the key assumptions underpinning the investment case? How can these be tested?
- Have potentially disruptive new technologies, market or regulatory changes been assessed?
- Is there any key customer, supplier or other dependencies? What level of their total sales are made up of their top 5/10 customers?
- What are the potential ‘left-field’ risks?
- In addition to ‘standard’ due diligence (accounting, tax, pensions, commercial, legal, environmental) what specific further issues need investigation?
Is there competition to buy the business?
- Are they also talking to other companies?
- Do we know competing bidders?
- Will the seller sell at the purchase price assumed or is there a possibility that competition will have an influence
Who will head up and drive the deal?
- Who will take responsibility for the deal?
- Does the management team have the time to run the existing business while also dealing with the acquisition process?
- Does the management team have the necessary experience to deal with the financial, legal, commercial, pension and possible regulatory aspects of the proposed transaction?
- Have you discussed the acquisition with a corporate finance advisor?
- Have you appointed an adviser to assist you in assessing the acquisition? If yes, do they have a track record of success in your sector?
Seeking the help of an M&A adviser early in any acquisition process you will ensure you get comprehensive advice that will help you to save time, money and effort during the acquisition process. It will also ensure the management team are not distracted, and can continue to run the business – ensuring continued successful financial and strategic performance; minimising any possible negative impact on existing revenues/customers, resulting from you ‘taking your eye off the ball’ during the acquisition process.