Business acquisition is nothing new. Just recently, we published a blog discussing the massive growth of innovation through acquisition that our economy is seeing. And it’s absolutely no surprise. The British SME community is a high-growth community of entrepreneurs that offer endless opportunity to both B2C and B2B markets. There is a powerhouse of companies in the UK who are an engine room of SMEs that employ the majority of the country’s workforce, enjoying robust growth and developing a loyal staff following. In Germany, it’s called the Mittelstand. And it’s not too dissimilar in the UK. In fact, it hasn’t been for a while.
In a 2011 Telegraph conference, then-chancellor George Osborne called on the country’s businesses to “learn the lessons of the successful Mittelstand model,” while working to get more mid-sized businesses into government and blue-chip supply chains.
And nothing’s changed. Because innovation and entrepreneurship is growing – every day. In fact, in January 2017, BDO reported that the UK’s mid-sized businesses grew faster, generated larger profit growth and created more jobs in the previous 12 months than the nation’s large and small companies.
And if you find yourself in this space, then we’re probably preaching to the choir. But when we start to talk about Mergers & Acquisitions, things can quickly take a turn for the worst, if you’re not aware of what to keep your eye on.
That’s why we wanted to give you a head start. If you find yourself either in the midst of an acquisition, or are about to embark on the process of being acquired, there are 4 critical parts of the process that need to be in check – to ensure a successful outcome. We call them the 4 Cs of Acquisition.
Every business being acquired has to go through a stringent amount of testing and reporting in order to get the value of the business just right. Your acquirer will be looking for the best deal that suits them. You, on the other hand, also want the best deal that suits you – but it may not look the same, or yield the same results. So, how do you make sure that both buyer and acquirer undertake a process that delivers mutually beneficial results?
We’ve seen it happen so often before. Deals dissolve simply because the Cash agreement was not reached, and a solid, level negotiation ground was never established. Buyers expect more than what is reasonable for the business they’ve taken years to build – and we understand it. You’ve worked hard to grow it to where it is today, and selling your business often feels like “selling out”. That’s why, reaching the best cash agreement for an acquisition that works in the favour of both parties, is critical.
As the buyer, you’re looking for the maximum amount of cash for your business, based on a fair and accurate business valuation – that reflects not only what you have done, but the opportunity, and potential that your business (and their acquisition) offers to anyone looking to buy it.
Every deal is laced with complexity – no matter how straight-forward it appears. But the winning recipe in any deal is to create an agreement that results in the least amount of complexity, and one that will deliver the best results for both parties in the negotiation.
Mergers and acquisitions are a critical enabler of strategy for many companies seeking to grow market share and acquire new technologies. Unfortunately, many acquisitions can be risky with many failing to create the value promised. And sometimes, trying to iron out the complexities of a deal results in even less value being created at the end of the deal itself.
Very often, the root of the complexity that rears it’s ugly head during a negotiation deal, stems from something far more mundane, and very often overlooked: Day-to-day operations. If your exit strategy for your business is to be acquired by another organisation, at some point in the future, you need to be considering the potential complexity that your day-to-day operations creates for future negotiation activities. Look at the activity within your own teams and business processes that are creating value. It won’t take you long to start spotting areas of improvement in your operational infrastructure that will allow you to become sleeker, more agile, more productive. Improving your day-to-day means that the complexity around your business will be managed, making any hope of a successful Merger or Acquisition, feel like a walk in the park.
Stay with us for a second. Chemistry does not only exist in test tubes and science labs. Nor does it exist in romance novels. Chemistry in business is also a critical success factor for most negotiations – especially when it comes to Mergers & Acquisition. Just as important as it is to get the right cash for the deal, you need to feel the right chemistry between your buyer and you. Organisations acquire other organisations that are going to enable their own strategic growth – and so, the chances are good that there will be a natural fit between the two businesses. All-in-all, a fairly logical approach, one would think.
But there’s more to it than just business type. Whether you’re discussing funding, or meeting a new client for the first time, business chemistry really comes down to issues of trust and values. When you choose business partners, employees, suppliers and even clients, you may think that you simply get what you get, but finding individuals and business partners who share your sense of values, work ethic and sense of purpose means that as a business, you’re forging a solid foundation for a negotiation that is based on mutual respect – making the entire acquisition process a lot easier.
Chemistry is based on feeling a good rapport, and having clear, honest communication. You want to feel like you are being heard and understood and that your values are respected – whether this be on an individual level, or on a bigger scale.
How many business owners go into a negotiation deal having an end-goal in mind? Almost all, we are sure. But how many of those go into that same negotiation feeling certain that they will be get the results they want? Very few. And it’s not because they don’t want a different outcome, it’s simply because they are not certain about the approach that the acquiring company will take, nor are they certain about potential risks that show themselves throughout this process.
The certainty (or, in many cases, the UNcertainty) of the results of a transaction, or the negotiation itself, is the one critical touch-point that many business entrepreneurs face. The Harvard Law school wrote a great analogy to describe the real effects of uncertainty on merger activity.
“Imagine you are in the market for a new car. You find exactly the car you want, and agree to the price and financing conditions, but there is a twist. In this alternate universe, you can’t actually pick up your car for several months, and during this time the actual value of “your” car is likely to have changed by 20% or more. Even worse, when the car has increased in value, the dealer can back out of your agreement, while you are likely stuck with the original terms if the car’s value has dropped. Are you still ready to sign on the dotted line?” And in their study, they go on to suggest that acquirers (and those being acquired) sometimes face a reality not unlike their hypothetical car buyer, and as a result quite often defer acquisitions when uncertainty is high.
So how do you as an entrepreneur who is ready for exponential growth, protect your own interests and gear yourself, your business, and your teams up to a successful acquisition negotiation? It’s easy – you do your homework. You focus on your business infrastructure, and get everything aligned that can only result in a successful result for both you, and your acquirer. You do that by working with a team like CFPro Ventures who are accustomed to the challenges facing SMEs, Entrepreneurs, Innovators – and who also understand the Corporate Venturing and Acquisition worlds – and who know what it takes to deliver exponential growth. If you want to know more about how we can help you, then get in touch with us today.