How to Create a Business Acquisition Strategy - Hilton Smythe

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How to Create a Business Acquisition Strategy

Selling up, liquidating your stake, or going public are ways you may be considering exiting your business. Even though global mergers & acquisitions (M&A) volume has decreased by 8% from the second half of 2022 to the first half of 2023, opportunities remain for ambitious entrepreneurs.

The first step is creating a business acquisition strategy you can rely on; but, how do you reap the rewards of a bespoke acquisition strategy? In this guide, you’ll learn everything you need to know about crafting a business acquisition strategy.

What are business acquisition strategies?

Business acquisition strategies refer to any number of methods to acquire another business. These strategies are always designed to achieve a specific objective, which could include:

Expanding Your Market Share – Businesses looking to achieve a stranglehold on their niches may acquire a competitor to bolster their market share.

Enter New Markets – Entrepreneurs may decide that acquiring a local business with an established setup is the simplest way to access new markets.

Access New Technologies – Sometimes, a small business or startup may create a groundbreaking tool, and acquiring the startup is the best way to make it exclusive to your brand.

Diversify Product Offerings – Acquisitions aren’t always like-for-like transactions. Firms may decide to undergo an acquisition because they want to increase their number of product offerings.

Eliminate Competition – Similar to expanding your market share, you may acquire another business because you want to eliminate it as a potential competitor in the present or future.

Acquisitions can form part of a growth plan for your business, or they could even comprise an exit strategy for entrepreneurs; and, with one in four business owners fast-tracking their exit strategies, getting acquired or making an acquisition could be the way forward.

Are there different types of business acquisitions?

Several types of business acquisitions exist. Each one has a different purpose that aims to achieve set goals.

For example, one of the trends within UK acquisitions now is inward acquisitions (foreign companies purchasing UK ones). According to UK government figures, in the first quarter of 2023, inward acquisitions rose by $6.9 billion from the previous quarter.

So, here’s a rundown of the various types of acquisitions you may be considering:

Horizontal Acquisition – The acquisition of a competitor within the same industry and market. These acquisitions are often a form of consolidation and allow firms to exploit economies of scale.

Vertical Acquisition – Businesses opting for a vertical acquisition purchase businesses upstream or downstream within their supply chain. For example, a vendor may choose to purchase a distributor or supplier.

Conglomerate Acquisition – A business acquisition within a completely different market or industry. Conglomerate acquisitions are ideal for diversifying your company’s portfolio.

Market Extension – Market extensions can consist of inbound or outbound acquisitions and allow companies to expand into new markets by taking advantage of an already-established supply chain and customer base.

Product/Technology Acquisition – These acquisitions are designed for companies seeking innovative technologies, intellectual property, patents or finished products.

Turnaround Acquisition – Often used by investors, a turnaround acquisition involves purchasing a wobbling business to rejuvenate and revitalise it. The company may be absorbed into a different setup or sold at a higher value.

Talent Acquisition – A talent acquisition involves purchasing a company for its skilled employees. This type of acquisition may also be known as an acqui-hire acquisition.

How to prepare a business acquisition strategy

Business acquisitions are complex scenarios, especially when approaching a business not actively for sale. These can get messy quickly, so a watertight strategy is essential for keeping your operation on the straight and narrow.

According to the Harvard Business Review, most studies reveal that between 70% and 90% of acquisitions fail. While you can never guarantee success, knowing how to prepare a business acquisition strategy will increase your chances.

Follow these eight steps to begin divining your acquisition strategy:

Step One – Define your investment thesis

Before reaching out to anyone, you should know why you are contacting them. Your investment thesis outlines who you want to acquire and all relevant metrics relating to that company, such as:

  • Target geographies
  • Company size in revenue
  • Number of employees

Your thesis is there to define what success is and is an attempt to justify why you want to acquire a specific company. How you measure success depends entirely on the type of acquisition and your goals.

Defining success will help you to narrow down your list of prospects.

Step Two – Create a financial model

Evaluating any transaction means modelling future financial statements as part of a combined entity. Doing so will show you how an acquisition can impact your organisation, including its performance, while evaluating known risks.

Financial modelling is a fundamental tool when evaluating any potential acquisition. By relying on the financial data, you can identify juicy targets and balance your decisions based on cold, hard facts, not assumptions on the risk/reward scenario.

Step Three – Establish your price and terms

The next step is to be realistic about the price and terms. Even in challenging markets, this doesn’t necessarily herald the acquisition of a good company available for a discount.

Always expect to pay the market rate for a good prospect. After all, if a massive discount is available, this is usually a prospect that should be avoided. Remember, if a company is available at a discount, there is likely a good reason for this.

Step Four – Prepare your integration plan

The post-transaction phase is pivotal for making the most of any acquisition. It is shocking just how many acquirers fail to plan this part.

Begin by identifying an integration team in advance of your acquisition. Any good integration team should consider the four main pillars of a successful acquisition. Namely:

  • Organisational
  • Operational
  • Financial
  • Technological

Acquisitions that fail to meet their original objectives usually occur because of poor planning and a lack of execution.

Step Five – Write a good story

The chances are that the prospects on your shortlist are attractive for several reasons. If they are attractive to you, they are also attractive to other potential acquirers.

What makes you the perfect fit for this acquisition? What are your unique selling points? Unless you are confronting a business in desperate need of cash, no company has to sell to you when so many businesses and venture capitalists are available.

Establishing a story that emphasises your unique selling points and justifying the acquisition is critical to winning over prospects and beating out other interested parties.

Step Six – Seek out proprietary deal flow

It’s no great secret that companies operating the process with the help of an investment banker will usually get higher prices and better terms. In other words, these prospects will cost more to acquire.

However, it’s always worth seeking out proprietary deals. Nobody represents these companies, and they can often be acquired at terms more favourable to the buyer.

Step Seven – Commit to thorough due diligence

Due diligence always takes time and money. This is one area that you should invest heavily in so that you know precisely what you are buying into.

Failure to perform detailed due diligence will leave you vulnerable to caveat buyers or let the buyer beware. Once a transaction has been completed, issues that were not uncovered due to a lack of due diligence could completely derail your plans and leave you with no recourse.

Some areas to focus on include:

  • Earnings reports
  • HR practices
  • IP assessments
  • Value of existing inventory
  • Obsolescence
  • Sustainability diligence
  • Vendor diligence
  • Market diligence
  • Client diligence

Step Eight – Adopt a flexible posture

Time is the biggest killer of deals in the business.

Allow your acquisition to fester, and you risk someone else snapping up the business or the firm changing their mind. This is why you must be prepared to move quickly after your due diligence to avoid the deal falling through.

Time is precious. Don’t waste yours or theirs.

What to include in a business acquisition strategy

The eight-step plan above builds the framework of a successful acquisition and should serve as a basic guide for preparing for your subsequent acquisition.

However, several components are required to make any acquisition strategy successful. Here are the facets every business acquisition strategy requires to maximise its chances of success.

Clear Objectives

All acquisition strategies require specific goals and objectives. Do you want to expand your market share? Are you looking to expand into a new market? Is cost synergy your primary motivation?

Defining clear objectives will help you to mark the line between success and failure.

Target Criteria

Establish criteria for identifying suitable targets. It may include:

  • Financial performance
  • Market position
  • Growth potential
  • Cultural compatibility

Financial Analysis

All prospects should have an in-depth financial analysis. This includes evaluating its historical financial performance, its profitability, current cash flow and any debt it holds.

While evaluating multiple companies, you should create your own grading system to differentiate between prospects.

Risk Management

Identify the risks associated with purchasing each company. Outline the likelihood of these risks coming to pass and what you can do if said risk occurs.

For example, what are your plans if an acquired company fails to live up to its financial potential?

Financing and Resources

Every acquisition will require adequate financing. In some cases, successful companies may have the financial reserves to purchase a company outright. Still, they will also have a plan for how plundering its reserves will impact their plans.

You also must consider the impact on your human resources. Who will be needed to work on the acquisition? What gaps will this leave in your day-to-day operations?


How will you communicate your acquisition plan to all stakeholders?

Whether you need to get the green light from external investors or you need to reassure your employees, you must define a communication plan. This will also include addressing any concerns stakeholders have.

Who should be involved in business acquisition planning?

All acquisitions are unique, and each strategy must be tailored to the prospect. No cookie-cutter options exist for securing your acquisition and turning it into your company’s next success story.

Crucial to the success of any acquisition plan is the team around you. Who must be involved in your acquisition plan?

  • Top-level leaders, including department heads and the managing director.
  • Business development team to identify targets and conduct research.
  • Legal and compliance experts to ensure that your acquisition is compliant with regulations like the UK Takeover Code.
  • Financial and accounting experts to analyse the financial viability of the move.
  • Integration team.
  • Operations team.
  • HR professionals for assessing the human capital of an acquisition.
  • Technology experts for evaluating the tech infrastructure of a prospect.
  • External advisors to gain an objective viewpoint of the acquisition.

Acquisitions are always a headache and require the input of every part of your organisation. In particular, external consultants are crucial for financing, acquisition planning, and compliance.

With Hilton Smythe, our team can guide you every step of the way in making your acquisition a success. Contact Hilton Smythe to learn more about acquisitions and receive no-nonsense advice on your move.

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