Making a success of buying a business

May 26, 2022

Dan Wright

Corporate Finance Manager

Making a success of buying a business


Making a success of buying a business


N/A, Corporate Finance Manager

There can be many reasons why a business owner considers buying a business and it can be a complex process to find, complete and make an ongoing success of any business acquisition.

Whatever stage you’re at in your acquisition thinking, whether you’re in initial stages of planning an acquisition, evaluating options or in final stages, you should take time to thoroughly assess your acquisition strategy and any target companies.

There isn’t a one size fits all formula for buying a business but there are many things that can be applied and considered by business owners to make your business acquisition a success and avoid some of the pitfalls.

Reasons to buy another business

Reasons to consider buying another business may be as follows:

  1. Accelerate access to a new market or geographical location.
  2. Obtain supplementary services, skills, and technologies faster or cheaper.
  3. Gain economies of scale.
  4. Improve target company’s performance.
  5. Consolidate to increase market share.
  6. Acquire newer companies to accelerate their development.

Buying a business – making it a success

1) Stick to compatible companies or industries

If this is your first or only acquisition, then think about acquiring a company that is a logical extension of your current business. For example, a company that has a compatible or similar product or service, someone with strong distribution or marketing channels that focus on your current target audience, a competitor in a new geographical location or to shore up your supply chain by acquiring a key supplier.

Questions to ask yourself are:

  • Is the target company a good fit with your own?
  • Is the culture, motivation, and team morale compatible with your own?
  • Is the brand compatible with your brand?
  • Are you duplicating skills?
  • Do the target company products or services expand your own or compete with them?
  • What benefits does the target company offer?
  • Are there any cost saving synergies that can be realised?

Sticking to compatible companies or industries will help to make the integration process smoother, will ensure brand consistency, be easier for you and your management team to manage the acquisition, maximise synergies and means you acquire in a market that you feel comfortable with.

2) Nominate a lead person and acquisition team for the project

There is no doubt that the business owner and management team, along with professional advisors are the best people to gauge a potential acquisition’s strategic and cultural fit, identify synergies, and establish the road map for the acquisition.

Having a clearly defined acquisition leader who focuses on executing the acquisition is key.

This acquisition leadership team should establish and maintain strong working relationships with the target company management team, this starts when initially approaching a target company and should continue all throughout the acquisition process and integration.

Following an acquisition, you should also have someone responsible for setting and achieving targets, achieving cost synergies, and delivering return on investment. At the same time, you should have someone to drive infrastructure projects such as the integration of IT systems, HR policies, financial controls, management reporting, and people retention.

3) Ensure the acquisition is a manageable size

It can often be better to make multiple smaller acquisitions than one large one. The probability of success can be down to the size of the target relative to the size of the acquirer. Making acquisitions of a manageable size can also minimise the risk of one larger acquisition. This type of acquisition strategy can produce more-predictable financial results over time.

It is likely that fundraising will be needed to make any acquisition. A Corporate Finance advisor can help the company approach funders and raise the funds. It is important to note that any acquisition will require some level of equity funding from the acquiring business or its directors.

The impact that the financing will have on the cashflows of the newly formed group will need to be forecast. This enables you to understand that the group would not be put under too much strain should there be any downturn in revenues.

4) Don’t rush a decision to acquire or buy emotionally

Maybe you’re currently looking at buying a business to compensate for mediocre performance or lack of growth. You may have something lacking in your own business such as skill gaps or product gaps that you feel the need to urgently fill.

Buying in this way can affect business judgment, create emotionally driven purchases, lead to the wrong types of acquisition and regret when the deal has gone through. Ensure you have a clear and considered acquisition strategy, and you engage in a thorough due diligence process to highlight any potential risk areas, to avoid this type of urgent or knee jerk acquisition.

5) Do your due diligence

Due diligence is about checking the details, conducting thorough background checks into all areas of the business and its management team, and uncovering any skeletons in the cupboard.

Many people think that due diligence is all about the financials of the company you’re looking to acquire but due diligence should go much further than that. Yes, financial due diligence is key to a successful acquisition, but you need to consider all the following areas:

  • Financials including EBITDA (earnings before interest, taxes, depreciation, and amortisation), cashflow, working capital, historical financials, future forecasts, budgets, tax, and financial assets and liabilities.
  • Legals including items such as certificates & licenses, customer contracts, supplier contracts, leases, and policies.
  • Systems and processes including technology and integration possibilities.
  • Board and management including board reports and registers, board members and board meeting minutes.
  • Customers and marketing including customer lists, prospect lists, product information, pricing structures, marketing strategy and plan, marketing metrics, future pipeline, and sales metrics.
  • People / HR including full list of staff, the importance of any key staff, employee contracts, consultancy contracts, HR policies and procedures, training and employee claims or disputes.
  • Intellectual Property including IP documentation and registers.

6) Communication and momentum

Communication is key through any acquisition process. Effective communication can avoid things being misconstrued, customers or staff leaving, or having disgruntled stakeholders.

However, from a confidentiality point of view it is important to only introduce the relevant people into discussions at the right time, something an advisor can help clarify at each stage of the process.

Ensure you communicate throughout relevant stages of the process with your own management team, advisor, target company directors, management team and wider team, customers and suppliers, and key stakeholders.

Having an advisor that can dedicate their time to maintaining momentum and project manage the process, as well as all parties involved, through to completion can sometimes be the driving force that gets an acquisition over the line.

As a business leader you need to consider if organic growth, buying a business or a combination of the two is right for your business. Mergers and acquisitions can be exciting and a fantastic way to create new opportunities and grow rapidly. However, there are challenges involved and not all acquisitions are successful. Using experienced Corporate Finance advisors, such as Barnes Roffe Corporate Finance, can greatly enhance your acquisition success.

Contact us today if you are thinking of buying a business.

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