Acquisition Strategy

Acquisition strategy is about finding a target company that will grow the value of your overall business.

To be in a position to acquire another company, you need to consider a few aspects about your existing business:

• Financially sound: Your company needs to be financially stable and have a proven track record of doing well. To identify the financial strength of your company, you can look at the value of assets, amount of debt, the client base and equipment equity.


• Solid business model: This means your company has a strategic plan in place and acquisition has been identified as one mechanism. At the end of the day, it’s all about ensuring you focus on the strength of the company and have a unified corporate vision.


• Strong management team: Having a strong management team will ensure there is a strong corporate culture and the business runs smoothly as they know the marketplace well. These elements will put your company in a good position to participate in an acquisition.


• Access to capital and funding: Of course, you need to have the financials to complete the transaction. If you don’t have cash, you need to ensure that you have the capital or access to funding that will ensure you can finalise the acquisition. If you haven’t already, look for lenders who are well-versed in your business of choice and start planning.

If you company has all the above and you decide that acquisition is the way forward, you will then need to look closely at your acquisition strategy; because without one, you may find a lack of direction in achieving a profitable outcome with your new venture. After all, you are acquiring the company to make money and create further value. Simply eliminating overheads is not enough, you need to have a plan that will grow the two businesses together, and in turn, generate value for the shareholders.

What is it you want in the target company?

The first step of an acquisition strategy is to outline the characteristics of the target company you require in an Acquisition Profile.

Here are some areas that should be addressed in this part of the profile:

• Nature of products and services: You will need to consider the type of products and services that are of interest to your company and its growth.


• Minimum levels of turnover and profitability: You may be looking for a certain level of turnover or profitability in the company you wish to acquire.


• Minimum market share and growth prospects: It’s important to know the market share and growth potential of the target company so that you can make a reasonable assumption or forecast of the value it will provide.


• Types of customers and nature of relationships: Consider whether there is an acceptable dependency on individual customers and suppliers and the status of these relationships.


• Location and geographic coverage: Take a look at whether the location and geography will complement your existing operations and support your expansion plans.


• Opportunity for integration: Check that the company you wish to acquire will be able to integrate with your processes and protocols. A successful acquisition depends on both companies being willing to work together to undertake the transition.


• Management continuity: If your management team is not onboard with the acquisition and may leave if it takes place, that is not a good strategy in an acquisition. Having management continuity will ensure you have a smooth and easy transition during and after the acquisition.

In the next part of the Acquisition Profile, you need to look at the type of deal you will consider for the acquisition:

• Minimum and maximum deal values; what is your budget?


• Maximum proportion of goodwill payable at legal completion; not something that has a value on the financial statements but without it, the company’s performance will be severely reduced


• Form of consideration; do you have access to the cash, shares or other funding to complete the deal or availability of loan notes as an alternative


• Desirability of earn-outs or deferred consideration

The Acquisition Profile is then used to obtain approval from the board for the acquisition strategy and is used as the principle reference point to assess any possible acquisitions.

Being able to plan out and document the acquisition strategy will set up your acquisition for success.

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