In my previous blogs on business acquisition, I outlined why opportunism does not work in business acquisitions and how to set up a good acquisition strategy.
In the blog below, I will focus more on the practical implementation of acquisition.
Let’s say: you have determined the direction you want to take the company. Analyzed the markets. And you have determined the criteria and conditions the acquisition candidates must meet.
All this is laid down in the acquisition strategy or acquisition plan. Cold trick to move on to implementing the strategy, right? Well…
That step is not as easy as it seems. From my experience, the very search for candidates is much more difficult than initially thought.
- Finding candidates
- Approaching candidates
- Identifying candidates
- Bidding and negotiating with candidates
Step 1: Finding candidates
Often the search criteria for our clients are far too general. Searching for companies in numerous databases and on the Internet is then hopeless.
My advice is always to work with themes or certain competencies of your own company that stem from the formulated strategy. Start the search for candidates with that.
An example: searching for hydraulic components is far too general a criterion. A search for products in the field of safety or a specific application of hydraulics such as the maritime sector is much more concrete. This produces more search results from the databases.
In addition, conduct interviews in the market and in your own company. These are often enlightening and can produce candidates.
Much knowledge of the market is in the heads of your company’s employees. It therefore makes sense to involve these employees in the acquisition preparation. They actively think along and will be more alert when a company is for sale in your market.
Make an A and B list
Once you have found a number of acquisition candidates, put them on a so-called long list. Analyze the available information and then carefully compare each candidate to the criteria you articulated in the acquisition strategy. Only then will you know:
Which candidates seamlessly meet your ideal profile
Which candidates satisfy to a lesser extent
Which candidates drop out immediately
Candidates who fit seamlessly are put on an A-list. Candidates who satisfy to a lesser extent are put on a B list (reserve list). This way you quickly separate the wheat from the chaff, and you have an overview of promising candidates. The A-list candidates can then be approached systematically. Depending on the success rate of the approach, companies on the B-List can also be approached.
Step 2: Approaching candidates
Approaching candidates is easier on the one hand and more difficult than before. On the one hand, the information is more transparent, making parties easier to find and thus approach. On the other hand, many companies have been approached before, so they are not open to new attempts. Result: responses are more non-committal and less serious. Or there is no response at all. A lot of time goes into the approach.
That is why I advise: have the approach done by an advisor or intermediary. Someone who knows:
How to approach to be taken seriously
What to say/ask in order to get the right information
How to get a foot in the door quickly
Which inputs can be used to get in touch with the company
Step 3: Further mapping of candidates
Large companies must publish figures and are often open about their plans on their websites. Smaller companies are less easy to map because they also do not have to publish all financial information. A good advisor, even with these smaller companies, knows how to find out the information that is not available elsewhere.
I myself usually get this information in the first interviews, just by asking (in the right way). This allows me to assess at that early stage whether the company does indeed fit into the acquisition strategy – or not. That saves you a lot of time, which you can use to focus on another candidate.
Step 4: Bidding and Negotiating with Candidates
It is often difficult to turn the conversations that have taken place into a concrete proposal. For many buyers, this is an exciting time. Now it comes down to it. You may be wondering, “Do I dare to take this step?
Even then, an independent advisor who can make decisions based on reason helps. I always say, ‘If the company meets what we had envisioned in the acquisition strategy, then a bid is a logical extension of the process.’ After all, each step is carefully taken and based on a sound strategy.
Moreover: a bid is often indicative, and not binding. So you are not yet committed to anything.
Important in this phase is to present the proposal in an attractive way to the candidate. The presentation is in the wording. And the wording, that is a speciality. Because not only must the conditions under which a transaction can take place be formulated, the necessary reservations must also be made.
Without our support, the formulation of a proposal is often omitted. Because information is lacking, or simply the knowledge to formulate a proposal properly. We can easily support the formulation of a proposal.
After the proposal has been formulated, the ball is in the candidate’s court.
Next blog: the final stage of the acquisition process
In my next blog I will address the final phase of the acquisition process: how do you make it a success? Where can things still go wrong? Can you still call off the takeover if that happens? And what role do emotions play in a business takeover?
Would you like to discuss a takeover with us?
Please call Clifton Finance: Maarten Vijverberg +31 6 55853074 or Gonneke van der Lee +31 6 52466518.
By: Maarten Vijverberg