The current environment may appear to throw up some apparent bargains and I am often asked by clients considering an acquisition what to look out for. It is a good question as, whilst bolt-on acquisitions may be popular, statistically more than half will fail.
Acquisitions generally, and bolt-on acquisitions in particular, have proved an extremely popular means of achieving rapid growth. In the main, a bolt-on allows for a larger firm to acquire a smaller specialist operating in an area in which it doesn't currently excel, and with it gain access to new markets, sectors, or channels, whilst reaping improved economies of scale.
But over 50 per cent of bolt-ons fail. Why?
No clear plan
Before you do anything, make sure you have a clear idea as to why you are buying the business. If the business case doesn’t add up, think long and hard about whether it is the right move. Don’t forget - other opportunities will come along. The most common pitfall is to buy something because the opportunity presents itself and seems a bargain.
It is not always a case of 'who dares wins'!
Lack of due diligence
Make sure you do appropriate due diligence. Post-deal, you do not want the distraction of resolving unforeseen issues. This means proper DD, even for a small business. For instance: does the target own its technology? You will be surprised how often it does not. Are there any tax or accounting landmines lurking beneath the surface?
Failure to integrate
Integrating a company can be far more demanding than buying it. Ensure there is an integration plan in place to facilitate as smooth a process as possible. IT systems in particular should be thoroughly considered so as to fully reap efficiency benefits.
Clash of cultures
One of the biggest issues with bolt-ons is culture shock. Smaller acquired companies can struggle to adapt to the ways of their new parent. Whilst natural, it poses a difficult question. Do you force your culture on the business (and potentially lose what made it so attractive in the first place)? Or, do you leave it to continue as before but with, perhaps, different reporting and financial structures in place?
With any bolt-on, the secret is creating the vision, getting everyone to buy-in to the plan, and taking good advice along the way. Bolt-on opportunities arise on a regular basis, so make sure you do the groundwork first to ensure it is the right one for you.
Oh, (and we would say this, wouldn't we?) but please do get some proper advice.
The most common pitfall is to buy something because the opportunity presents itself and seems a bargain. It is not always a case of who dares wins!