In the previous blog article, I told you why opportunism does not work in business acquisition. You need a thoughtful and detailed acquisition strategy (aka acquisition strategy or plan) to quickly and properly determine if a business is of interest to you.
But how do you create an acquisition strategy? Where should you start? You’ll get answers to that in this article.
Acquisition strategy vs. business strategy
Broadly speaking, your acquisition strategy should align with your business strategy. After all: in your business strategy you formulate your goals. All the choices you make in your business should lead to achieving those goals.
In other words: business acquisition and the related acquisition strategy is a way to implement your business strategy and achieve your goals.
Unfortunately, in our practice we still too often encounter that a business strategy is not in place or not sufficiently developed. If you don’t know where you want to go, you can’t determine if acquisition is the best way to get there!
So first of all, have a detailed business strategy and, based on that, determine whether acquisitions are necessary and desirable to achieve the goals. If that is indeed the conclusion, the next step can be taken.
How do you begin writing a good acquisition strategy?
Determine in which market you want to acquire companies.
First, you must have good analysis ready of markets and the products or services in these markets. Is there growth in these markets, how is the profitability of the products and are there any developments or knowledge that you lack?
This determines the choice in which markets and products are preferred. With this also comes an important dilemma: do I strengthen what I am good at or do I take a new direction and enter a new market?
Entering a new market often means more risk, but the payoff is greater if it succeeds. In general, the greater the risk, the greater the reward – and vice versa. The alternative is to choose to strengthen and build on existing markets.
Whatever choice you make, it is important to make it on the basis of factual analysis: are the market and the margins attractive enough for me? Only then can you make the right choice about a possible acquisition.
Takeover profile
Once you have made good analyses, a sharp profile of possible takeover candidates is already partly drawn. You have a much better idea of what you are looking for:
- Sector/industry;
- Type of products and services;
- Geographic area.
And that in turn leads to acquisition criteria in the areas of finance, commerce, organization, management, etc. But that doesn’t get you there….
The strength of your company
The next step is to properly identify the strengths of your own company. Only then can you turn your acquisition strategy into a concrete executable plan. In other words:
- What are you good at and what can you add to a company?
- Where do you currently lack competencies and need to buy additional ones?
For many entrepreneurs in our practice, this is often known based on long experience, but not recorded or made explicit. This approach helps in making the right choices.
An example: you are very strong in management, but not in Research & Development. Then you are looking for a company that is strong in R&D, but lacks management skills itself.
This strategic way of looking at acquisitions is really of our time. It is about adding value and creating synergy. Acquisition should lead to profitability improvement and value addition for all parties.
Financial and other criteria
Often the financial criteria are started. In our approach, these emerge much later in the process:
After all frameworks are known and the main strategic conditions have been completed, they must be supplemented with concrete financial conditions. Size of the transaction, desired profitability, expected calculation of value with a certain calculation key (multiple), financing and the like.
Finally, a wish list can be made about the criteria of organization, leadership and management.
In summary: this is how to start setting up an acquisition strategy
- Determine which direction you want the company to take
- Analyze the markets, make clear choices
- Map your strengths, so you know where you can add value
- Map your weaknesses, so you know which competencies you want to buy
- Establish the financial and other criteria that the acquisition candidate must meet
- Make an acquisition profile and selection on this basis
Talking to an acquisition specialist?
Now you know where to start. But would you like to know exactly how to go through these steps and what to do next?
Then call Clifton Finance for an informal discussion Maarten Vijverberg : +31 6 55853074 or Gonneke van der Lee : +31 6 52466518.
By: Maarten Vijverberg