The purchase of companies is a process in which an investor, whether a company or a private individual, acquires a business in which it has previously found interest due to the sector in which it is located, the opportunities it presents, its projection, etc.
In an increasingly dynamic competitive environment, inorganic growth strategies allow competitive advantage to be gained more quickly and with less risk, but require financial investment in return.
Buying going concerns can be a psychologically draining process for those without M&A experience. On the other hand, it requires dedication of time, effort and wear and tear.
Baker Tilly Global Deal Advisory assumes the majority of the effort, allowing the client to focus on managing their current business while maintaining control over the purchasing process decisions.
In addition to the acquisition of a company, a number of other strategic avenues can be used for the growth of a company, such as innovation (internal development) or alliances with third party companies.
The advantages of growing through acquisitions are:
- The acquiring company acquires control of the acquired company from the outset and thus reduces the risk.
- Acquisition generates positive impact faster than innovation or partnerships.
- With M&A, new capabilities or strengths are integrated into the company.
On the other hand, the acquisition of companies has the following disadvantages:
- Requires a financial outlay or investment by the buyer.
- During the process, asymmetric information has to be managed and therefore requires careful analysis and evaluation and verification through due diligence.
- The integration of the acquired company is critical to the success of the operation.
It may seem that only large corporations can acquire or merge with other companies, but this is a very valid open alternative for SMEs as long as they have have a clear growth strategy. The most important thing is to know how to make it a success.
Good reasons to grow by acquiring
Most importantly - and this applies to any M&A transaction - an M&A transaction will make economic sense as long as it maximises shareholder value. Therefore, the basic objective of an acquisition is to generate synergies between the two companies that will increase the value of the new combined company.
Depending on the type of operation carried out, the advantages vary:
- Horizontal integration: it is about acquisitions in the same industry. Due to possible economies of scale, costs of production and purchasing or supply processes are reduced. Depending on the extent to which competition in the industry in which it operates is reduced, the company can raise prices and thus increase its profit.
- Vertical integraction: it is about customer or supplier acquisition. One of the objectives is to improve the technological alliance in order to integrate related activities. In addition, it allows to control the inputs and outputs that previously existed between the two companies and therefore the purchasing and supply processes become internal processes with their consequent improvement in efficiency.
- Related diversification: acquisition or merger with companies in related industries. Similar assets are used and therefore costs may be shared.
- No related diversification: acquisition or merger with unrelated industrial companies. No synergies are created, but available liquidity is used to diversify the conglomerate's balance sheet risk.
In addition to these operations, there are those of a more opportunistic type, where the value of the acquired business is expected to increase through an improvement in the management of the organisation or the sale of the various assets of the acquired company that are estimated to be undervalued.
Doubtful reasons to grow by acquiring
Among the reasons for an acquisition or merger, there are also some of a dubious nature, such as personal motivation of management, risk diversification, effect on earnings per share, lower financing costs, growth for growth's sake, etc...
Key aspects for a successful process
It is a process that requires in-depth research focused on the sectors in which the investor is interested; negotiation skills of an experienced professional to achieve a fair deal; knowledge of valuation, sale and purchase agreements and payments.
There are several aspects of the buying process that are key to determining your success:
- What - determination and assessment of synergy: before contacting any company, it is necessary to define the synergies you are looking for, in order to know the value of the future incorporation.
- How - search, selection and integration plan: with clearly defined criteria, businesses can be sought out and selected objectively. The integration plan needs to be developed early in order to identify as soon as possible the problems that may lie in the details.
- Due Diligence: Apart from the financial aspects, a thorough analysis of human capital is essential.
- Selection of the management team: determine which of the company's key equipment will be acquired to drive growth.
- Integration of cultures: This aspect is not only relevant when acquiring foreign companies, but also in different organisations we can often encounter very different working cultures.
- Communication: Any change causes possible conflicts and doubts among employees, therefore, it is very important that once it has started, communication is continuous and clear. At the same time, it is good that the integration process is as smooth as possible, without being uncontrolled.
Processes in the purchase of a business
Baker Tilly Global Deal Advisory advises on buyouts and private equity investments on the optimal corporate structure and throughout the entire buyout process. Our differentials are based on:
- Our service is fully comprehensive , ranging from growth strategy, M&A search and deal generation to due diligence, valuation and integration.
- Baker Tilly Global Deal Advisory specialises in high-growth SMEs in technology industries.
- Our international structure gives us unique access to growing businesses around the world and we can provide local support wherever our clients need it.
You need an experienced professional to lead the process and take care of all the details to reduce the risks of the transaction. To this end, at Baker Tilly, after compiling our experience in M&A, identifying best practices and analysing the shortcomings of the Mid-market offer, we have created our own M&A model based on a combination of these pillars: