Mergers and acquisitions
Here's how I made an acquisition
When Penny Harper set up her recruitment consultancy, The Recruitment Link in Newcastle-under-Lyme, expansion through acquisition came sooner than expected. In her first year of trading Penny was approached to buy another business in the area.
What I did
Know the market
"Although I wasn't spending a lot of time seeking an acquisition to accelerate our growth the opportunity was interesting. I knew the national and local recruitment market well and believed that we could establish a stronger base if we could buy the business at the right price.
"However, the recruitment business I was offered was struggling and, considering I wasn't interested in some parts of it, the initial asking price was too high. So, after a few conversations and a review of their financial results and prospects, I politely declined the opportunity.
"I used my accountants to help with the financial evaluation, but my decision wasn't based solely on their advice. I talked to the owners and staff, looked at the client list, assessed regulatory compliance and went through operational systems in detail. It was the only way to find out what was really going on under the surface. I concluded that with different management it would fit and had profit potential, but the deal had to be right."
Negotiate the right deal
"Following the breakdown of initial discussions, negotiations started again after a short period. Having done my original research I was very clear about what I wanted and, given that nothing had changed, was prepared to stick to my valuation of the business. Persistence pays and we finally agreed a deal.
"Getting the contract right was a key part of making the deal successful. I took advice from my lawyers and before signing reviewed all aspects of the contract carefully.
"I was keen to make sure that I didn't pick up any costs I shouldn't, such as unrelated creditors, vacant property charges and equipment or vehicle rentals. I was also keen to make sure that existing arrangements with clients and temporary staff were transferred to me."
Manage the transition
"Whatever the route to buying a business, there's a lot of hard work in managing the change to new ownership. Part of my pre-acquisition review focused on how I'd handle the first three months after I owned the business.
"After I'd completed the deal the first thing I did was talk frankly to all the temporary staff on the company's books and to all the active clients. Not all the clients were profitable accounts so there were operational and pricing changes that needed to be made immediately.
"I explained the changes to everyone concerned and the majority of clients stayed with us. They could see that the way I intended to run the business would cost them more, but would lead to a better and more reliable service. I also replaced the financial controls in the acquired business with my existing systems and processes."
What I'd do differently
Think about the work involved
"I probably underestimated the extra effort needed to buy a business and make it work how I wanted it to. Buying a company can be very distracting and time consuming, so make sure that focus remains on the existing business as well."
Subjects covered in this guide
- Introduction
- Benefits of a merger or acquisition
- Deciding if your business is ready
- Identify targets for merger or acquisition
- Assess the target business
- Assessing business value
- What can go wrong with a merger or acquisition?
- Legal aspects to consider
- The deal itself - a checklist
- Staffing issues - before and after
- Here's how I made an acquisition
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Penny Harper
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