But lets start with valuation. All things being equal, the best acquirer of the business is going to be the one with the most to gain from the acquisition. Provided the acquirer is willing to share the value of these synergy benefits (and a good process should force them to do so), this should allow them to put forward the highest valuation.
What kind of factors support increased valuations If your business offers an acquirer:
- Complementary products or services which fill a gap in their existing offering;
- Improved financial performance (particularly enhanced margins; revenue for the sake of revenue is less compelling);
- Increased market share in key high-value segments;
- Economies of scale;
- An enhanced geographic footprint; and/or
- Additional distribution then the value of these benefits can be quantified and shared.
The softer side
But the qualitative factors matter too. Often intangible, these frequently determine whether an acquisition is successful or not. Cultural fit and personal chemistry are the most obvious; in general, youll pretty quickly have a sense of whether or not you can work with the team you’re meeting.
The more value you have riding on the future (for example, in an earnout or in share-based consideration) the more important this fit will be. In almost every process we run, our client will walk out of one meeting shaking their head and saying there is no way I could work with them
Identifying the right cultural fit is harder when dealing with foreign counter-parties and building bridges even more important. With 40 per cent of UK transactions completing with international acquirers in the past 12 months, and with many willing to pay a premium to enter the UK market, you need to look past the accents and cultural quirks and focus on the compatibility of management style, the shared vision for the future, and their willingness to listen to how things are done over here.
In most cases, completing the transaction is not the end, it is only the beginning. Again, the more value you stand to gain through an earnout or similar, the more important (to you) a detailed integration plan will be.
Proper post-integration planning, which includes identifying in detail the immediate cuts you will make to duplicate overhead, the first calls in to key current or prospective clients to start cross-selling, and so on. This will help both you and the acquirer capture the synergy benefits which support the acquisition rationale, underpin the future of the combined entities, and ultimately justify the valuation placed on the business.
Tom Phipps is director of Livingstone London.