The current environment may appear to throw up some apparent bargains; 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.
So, why do 50% of them fail?
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. One of the primary reasons bolt-on acquisitions fail is the lack of a clear plan from the outset. Before proceeding with an acquisition, it is essential to have a solid understanding of why the purchase is being made and how it aligns with the company’s strategic objectives. Assess whether the acquisition will bring tangible benefits such as access to new markets, specialised expertise, or improved economies of scale. 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’!
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? Effective DD is crucial to uncover potential risks and pitfalls associated with the acquisition target. Regardless of the size of the business being acquired, conducting comprehensive due diligence is essential. This includes assessing the target’s financial health, intellectual property ownership, contractual obligations, regulatory compliance, and potential legal or tax liabilities. Thorough due diligence minimises the risk of encountering unexpected issues post-acquisition and allows for better integration planning.
The integration of a newly acquired company is often more challenging than the acquisition itself. To ensure a smooth transition, it is vital to develop a detailed integration plan. Identify key areas of integration, such as operational processes, technology systems, human resources, and cultural alignment. Culture in particular, as mentioned below, can play a huge part in integrating new members of staff to your company. Effective integration planning should consider the strengths and weaknesses of both organisations and aim to capitalise on synergies while minimising disruptions.
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? It is often the case that both parties will strike a balance between preserving what made the acquired special in the first place while introducing the changes necessary for integration. Open communication, transparency, and empathy are essential to foster a positive and collaborative environment. It may be necessary to establish new reporting and financial structures while allowing the acquired company to maintain its unique identity.
Acquiring proper advice from experienced professionals is crucial throughout the entire acquisition process. Experts will guide you through due diligence, negotiation, and integration, identifying potential risks, providing strategic insights, and ensuring compliance with regulatory requirements. Professional advice acts as a safeguard, increasing the likelihood of a successful acquisition while allowing you to retain focus on the operation of your company.
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!