Acquiring a business

How best to achieve rapid growth? Sometimes buying an existing business can be best way to do this. The question is, how do you go about it?

First, review your existing business to assess your motives and to identify your own strengths, skills and resources. Not only will this reveal if acquisition is indeed the best option but it will also identify any obstacles or shortcomings in your business that could prevent a successful combination.

Having established that acquisition is a viable option, you can begin your search. If you don't already have a target in mind, finding suitable targets can be quite a lengthy process. Some can be opportunistic, for example when a suitable target is in financial difficulties. However, more often than not, suitable targets are discovered only after carefully planned research.

Once a target has been identified an approach must be made to see if a deal is of interest. At this stage confidentiality is of the utmost importance and you will need to work hand in hand with professional advisers who understand the intricacies of deal management.

When setting out on the acquisition trail there are a number of issues that will need to be covered.

Deal structure starts with the commercial logic of the combination - the target will have to be valued and a thorough investigation undertaken to reduce the risk. You will need to take into account any allegiances or agreements the target has with other companies and check if there are ties to customers or suppliers. If machinery or software is involved will it be compatible?

There are a number of tax and financial matters that need taking into consideration. For example, advice could be needed on group structures, especially where foreign operations are involved. Stamp duty may be involved on the acquisition of shares or assets, and tax advice may be needed where property is involved.

You will also need to undertake a detailed review of the working capital requirement and look at how the new company structure will change your overheads and profitability.

Acquiring a business is a time consuming task and at all stages of the deal process it is important that you don't lose sight of the aims and needs of your core business. Neglect at this stage could severely hamper any benefits that acquisition may bring.

Grant Thornton has experience of helping owner-managers through the acquisition process.