There’s lots to consider when advice firms are considering buying or selling a business but without achieving these things any acquisition faces poor odds
The number and pace of intermediary firm acquisitions has, it is widely quoted, never been greater. Two interesting – if true – statistics appear to bear this out:
- There are possibly now over 100 acquirers, or would-be acquirers in the market. This is based on desk-based research by Orion Consulting Group.
- The FCA currently has circa 100 change in control applications in the pipeline. This doesn’t take account of asset purchases where change in control is not required.
When you add in the average age of intermediary firm business owners – reckoned to be circa 55 – and the perceived pressures created by regulation and PII challenges, it’s little wonder there is such an active market.
However, contrast these points to another statistic I heard quoted regularly by the Institute of Directors when doing my chartered director exams a few years ago – over 70 of all acquisitions fail to deliver long-term shareholder value to the acquirer.
So, for any firm or organisation contemplating embarking on making acquisitions there needs to be careful analysis based on its own specific circumstances and priorities to ensure, as far as it possible, that acquisitions will enhance the embedded value of the business.
Similarly, firms contemplating a sale need to undertake due diligence into any would-be acquirer to understand the rationale for making acquisitions and their ability to deliver successful outcomes for all parties.
Here are the most common success factors that I have consistently seen demonstrated by firms who have succeeded in their acquisition strategies:
1. There is a strategy in place
This may seem obvious, but when asked, some firms do not have a thought-through strategy or if they appear to, it’s not documented and costed. It’s an important question to get answered if you are contemplating a sale.
2. There is cultural alignment
Following on from the first point, for acquisitions to have a decent chance of success for both parties, there needs to be a meeting of minds on how the business should be run and especially, how clients are dealt with. In short, shared values.
3. There is funding
Again, you might reasonably think if a firm wants to make acquisitions, they will have funding in place. That may not always be the case and it’s another important question to ask. Specific answers are required. What sellers want to avoid is a situation where time, effort and money is spent on agreeing terms, only to find there is no money or insufficient money to complete the deal.
4. There is adequate resource of the right sort
Completing an acquisition is only part of the overall process. An effective integration process is a key success factor along with having the appropriate level of resource and people who have the know-how and skills. If there is not an effective integration, it can impact on the level of deferred payments, something sellers should consider.
It’s in the long-term interests of both the acquirer and seller to each have a firm rationale for completing the transaction, and that may involve some ‘red lines’ in terms of aspects that could be deal breakers in specific circumstances. An example might be premises where the vendor feels it’s important to keep their offices open at least until the end of the deferred period, in order to maximise the successful transition of clients.
If an impasse is reached, it may be tough for both the acquirer and seller to walk away, but that is better than arriving at a series of compromises and a resultant deal that does not stand the test of time.
6. There is chemistry and mutual respect between the acquiror and vendor
This is especially important where the directors or partners in the firm that is selling plan to stay on. It should not be a case of hoping for the best. If there is going to be regular ongoing contact there needs to be a high level of confidence that what is promised is also delivered and that the relationship will be one that both parties enjoy.
7. There is the right level of professional support
It isn’t a common occurrence, but if it becomes obvious those working for the acquirer— be that solicitor, consultant or accountant – have shortcomings, this can and sometimes does lead to a rapid loss of confidence on the part of the vendor. It’s therefore paramount the acquirer has complete faith in their team of professional advisers and how they conduct themselves in their dealings with sellers.
So, the final question you might want to ask yourself if you are the acquirer is how you measure a successful acquisition – and likewise as the seller. My answer is as follows: if you can look back after four to five years and see a lasting increase in the value of your business plus contented clients and staff, that is likely to equate to success. Likewise, as the seller, if you have received all the expected consideration and your clients and staff are happy, then this likely equates to success too.
Roderic Rennison is director of Rennison Consulting