Addressing key risk areas on potential acquisitions

 

Potential acquisitions can offer both highly attractive opportunities and key risks that should be carefully considered from the outset, as addressing these key risks early is vital to successfully preserving and maintaining value post completion.

Valuation

Pricing a potential acquisition appropriately at the outset is naturally important to maximising return on investment. Determining the initial offer and structure should be specific to the potential target and the initial offer should reflect both the quality of the target and the fit with the buyer’s pre-determined strategy. Specific industry valuation measures should be considered in the context of the target and is essential that any initial offer is based upon on reliable information as often any material change to an initial offer can lead to a breakdown between a buyer and seller later in the process.

Due Diligence

Undertaking value adding due diligence is the first line of defence to mitigate any potential exposures of the target business but remembering not to get buried in a ‘box ticking process’ and focus on the high-risk areas. Engaging with advisors to identify specific works scopes and assess the key risk areas such as finance, legal and commercial aspects of the business can help to maximise the value of diligence. Due diligence is often tagged as a thankless task, however, often the most valuable time will be spent with management to fully understand the drivers of a potential target.

Project management 

Preparing a timetable detailing all key stages of the process up to completion is crucial to ensure that an acquisition is completed within a reasonable timescale and is managed effectively. Many organisations do not have the in-house resources to co-ordinate and drive forward a process and this can result in a lack of efficiency and significant time delays. During any process it is key that management of both the buyer and seller are able to focus on the day job and do not get too distracted to the detriment of either business. Buyers who adopt a rigorous approach towards transactions are far more likely to get a deal across the line.

Pre and Post-acquisition integration

From the outset of a process it is important to consider the key potential risks associated with the integration of a potential target and develop possible mitigation strategies as well as a clear integration plan both pre and post-acquisition which identifies individual responsibilities and deliverables. As part of integration it is vital that key management and staff are identified early and appropriately incentivised to assist with the delivery of a buyer’s growth strategy.

For more information please contact Gordon Steele, (gordon.steele@aab.uk) or our usual AAB contact.

To find out more about Gordon and the Corporate Finance team, click here.