So, you’ve got to the point where you’re comfortable that making an acquisition is the right thing for you and your agency.
You’re clear on the rationale and that its preferable over the other ways that you could grow. You’ve assessed the many pitfalls and risks that could ensue, and you’ve balanced these against the upside.
It’s worth mentioning the starting point for many conversations we have with clients is where an opportunity arises out of the blue, and where the discussions on rationale, risk and reward are compressed into a short time period. For example, you’ve heard a competitor is in trouble and there’s an opportunity to acquire capability or their client list.
Serendipity aside, if we want to be deliberate and strategic in the way we acquire, how do you move forward in the best way? What are some of the things that you need to consider and how do you give yourself the best chance of making it a success?
Here are snippets of what I’ll be sharing during my “5 lessons if you want to acquire another business” event with the PRCA in March.
1) Create a shopping list
Identify any key weaknesses that you have as an agency and how an acquisition might help alleviate them. Does the other business have a better quality of earnings? Can you reduce your over dependence on that big client that keeps growing? Can you modernise and improve your service offering? Can you improve the talent pool or make it easier to attract the right talent?
2) Does location make a difference to me?
A blog all in itself, but some key things to consider here would be around an optimal location for you. It might be easier if it located near you so that integration and general management is easier. Does having a different location is a different part of the country work, could you have a low-cost production base for example? Does a different country make sense to open a new market? What will the operating rhythm be and what tools might you need to invest in? What are the cultural hurdles you’ll need to overcome?
3) Decide what good looks like
Draw up a balanced scorecard of what an ideal acquisition looks like. This will not only help develop your thinking on what good looks like, but it will also help you compare one business against another. Recognise that once you start meeting different agencies that your scorecard will develop, and your brief will be refined.
4) Use an advisor
Disclosure. I’m one of them but it makes so much sense to get support and a good advisor will deliver huge value and likelihood of success. The opportunity to gain better market intelligence and be able to access a bigger part of the market should not be underestimated. Without it you’re fishing in a small pond of contacts and immediate network and you’ll not be able to reach a greater number of quality targets without one. They’ll also have more experience in assessing a good business and if your intention is to realise value at some point in the future, you’ll need the context of the market, value and buyer appetite around what the combined entity will deliver. Better negotiated outcomes, deal structure and the right incentives for all stakeholders are crucial to success.
5) How are you going to fund it?
Another one for a good advisor to help you with and dependent on so many factors. Internal vs external funding will much depend on the profile of the business you’re acquiring and the balance sheet of both businesses and the available cash flow available, the type of deal structure that arises, the amount of money vs other forms of consideration and the story you’ll be able to tell to an investor in the form of a good growth plan.
Our highly experienced team have walked in your shoes. Having run businesses themselves, they know how to unlock the potential of your business, and provide practical support to implement your ideas.
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