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Mergers & Acquisitions – how to find the perfect deal (part 1)

First, a question: What do Apple, Amazon, Pearson, Virgin, B Sky B, Bloomsbury and ITV all have in common?

Answer: They have all acquired other businesses as a means to develop their own corporations.  This is not just in the media sector either.  Mergers and Acquisition (M&A) is a route for business development in any sector.  I am also seeing a lot of consolidation in the offshore financial services sector as it becomes increasingly more difficult to maintain customer value in a fiercely competitive and regulated market.

But why do it when the track record of successful acquisitions is so mixed? Why take the risk and invest capital in a business that you don’t know as well as your own? Well the answer to that question is much more complex. The reasons are as varied as the businesses themselves. Sometimes the reason is simply opportunistic. Your business is doing well, you have the cash, an opposition company is not doing well so bang, you sweep, taking out an opponent, gaining market share whilst probably extracting some back office savings as well. Sometimes the reason is strategic; your target has assets or intellectual property that you need to expand your own business. Sometimes it can be as simple as wanting key staff that are financially tied to a business (think Steve Jobs and Next Computer or Victoria Barnsley and Fourth Estate).

No matter what the reason is, the purpose is the same, growth and development. That is always the challenge. How do you develop and grow your business in an efficient manner? Sometimes a merger or acquisition is the answer to that question because sometimes size does matter.

Benefits of a merger or acquisition

There are many good reasons for growing your business through an acquisition or merger. These may include:

Accessing a wider customer base and increasing your market share or increasing your product / service diversity. Your target business may have distribution channels you can use for your existing products or services, or alternatively it may have products or services which you can offer through your existing sales channels giving you a double gain.

Obtaining quality staff or additional skills, knowledge of your industry or sector and other business intelligence.  A business with good management and process systems will be useful to you if you need to improve your own. They may also have patents and IP that you will have access to.

Accelerating your existing business plan. Businesses in the same sector can accelerate their business plans by combining resources to reduce costs, eliminate duplicated facilities or departments, and increase purchasing power and revenue.

Accessing funds or valuable assets for new developments. Better production or distribution facilities are often less expensive to buy than to build. Larger businesses can often access funding at a cheaper rate, and may become large enough to make public funds viable.

Multi-national development. If you are struggling with growth in a single jurisdiction it may well be less expensive to buy an existing business overseas than to expand internally.

Reducing competition. Removing a competitor or acquiring new intellectual property, products or services may be cheaper than developing these in-house.

Making a successful acquisition can be a time consuming and difficult process, so it is essential that you prepare early and consider using external experience in M&A.  Once such organisation is my consulting network The Lamberhurst Corporation, who have an active and experienced M&A practice.   We can assist you through the process from initial targeting to valuation and funding. We have team of consultants ready to be your right hand person, allowing you to continue to manage your own business successfully.

In the next article I will provide some detail on how to identify the right target and the due diligence process.

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