SME’s can get caught up in the excitement an acquisition opportunity presents, but often the process can be time consuming, a drain on resources and very costly if you don’t manage the process properly up front.
In conversation or on paper it could seem like a golden opportunity, but before you even venture down the road of acquiring a business, you should:
Make sure the business you are buying is sale ready
What I mean by this is:
- Check they have all their data and documents acceptable for Due Diligence
- Beyond just the financial, they need to ensure all other key items are up to date and in a presentable form, such as insurance certificate of currency, IP documents, ASIC register, Company Register, signed employment agreements, signed contracts.
By not having information Due Diligence ready you will end up doing all the work chasing the documents at no cost to them but at a significant cost to yourselves.
The easiest way around this is to send a checklist upfront with your request for information and don’t start working on the acquisition until it is ready and available.
Often businesses will set up a data room where all the information can be stored which helps in the storing and collecting of data during the Due Diligence process.
Have you met the seller face to face at their premises
Often you hear of an acquisition opportunity by someone else rather than from a business owner themselves, so it’s important you visit their premises and meet the owner directly.
It’s advisable to do this early in the process to assess the key stakeholders, and get a feel for the business, but at the same time being conscious of confidentiality and any impact your presence may have on their employees.
Avoid communication by email
Try and facilitate your communication via the phone directly with the key stakeholders and avoid confirming key outcomes and actions by email.
If lawyers have been engaged, they do not need to be copied on all emails as they will charge for their time.
If you have engaged an advisor to run the due diligence and acquisition process, get them to do the communication and manage the process to limit your own involvement.
Get the valuation right before speaking figures
The all important part. Often the price being asked does not have too much logic behind it, so any offer you make must be supported by generally accepted valuation method applicable to the business.
Common methods are
- EBITDA multiple
- Net Present Value
- Asset Valuation
For any of these you must make sure that their accounts are normalized to adjust for “private” and non-recurring expenditure etc. These include expenses such as private vehicles, entertainment, travel and FBT.
There is likely to be a net tangible asset adjustment to the price, at date of settlement, so ensure you have the relevant items identified.
Lastly be prepared to walk away and look for another opportunity
Agree a timeline
Make sure you have a timeline that is agreed to with the seller, then stick to it, to avoid wasted time and money is lost.
Keep it tight and focused other wise interest fades and it opens the door for other purchasers.
You should try and obtain an exclusive period, without ant fees, to complete Due Diligence and negotiate the deal.
For any more tips, get in touch!