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Posted on 3 August 2011 by Ceris Burns

Top tips for successful acquisitions

Acquiring an established company overseas is one method of rapidly breaking into new markets. It can however also prove to be a risky business, so first-time buyers should step out with caution. Ceris Burns, international marketing specialist for the cleaning industry offers top tips to ensure acquisition success.

While the purchaser may benefit from access to ‘ready-made’ customers, a skilled workforce, technology and branding, he/she may also inherit the existing problems of the business. On top of this, the goals of the two companies could conflict and legal problems may also arise. The tips that follow will serve as a guide through the acquisition planning process to ensure a smooth outcome.

1. Write a wish list Senior management should set overarching criteria against which to select potential companies, e.g. sector experience, turnover etc.

2. Decide where your search will start Board member contacts, business advisors, solicitors and specialist agencies tend to be good starting points to seek out suitable targets.

3. Know what a potential hot target looks like The target company will tally up with your checklist of ideal qualities which should include amongst others: An established track record, a solid customer portfolio, an effective management team, a secure financial history, realistic projections and strong assets.

4. Double check the numbers It might sound like common sense but do make sure that the value of the combined business exceeds the value of your existing business plus the price of the acquired business.

5. Suss out any possible personality clashes You need to know early on if personal issues could ruin the deal. For this reason it’s recommended to meet with senior management of any potential targets as soon as possible.

6. Agree upfront who will pay if the deal gets cancelled It is acceptable to expect the vendor to pay the majority of fees if the deal fails due to problems pinpointed in the due diligence.

7. Go get a plan You will need to plan the integration, assess the strengths and weaknesses of both businesses, and adapt your sales and marketing strategy appropriately.

8. Agree the deal structure If you buy shares it is more straightforward as you buy both assets and liabilities. However, if you buy the assets, you can pick and choose the elements you want and you don’t have to inherit liabilities.

9. Treat legal and financial due diligence with utmost importance Legal due diligence covers things like the structure of the target company, employment issues, I.P rights and legal compliance. Financial due diligence on the other hand provides an independent review of the information provided by the vendor. This should include: historical earnings and profits, the customer and product mix, future prospects, bad debts and creditors, pensions and tax liabilities.

10. Be a legal eagle Make sure that the sale and purchase agreement contains warranties and indemnities. Agreements often contain pre-completion conditions and should also contain restrictive covenants on the vendors. Finally, ensure power of attorney is in place in case not all parties can attend the final meetings.

For more information about acquisitions contact Ceris at ceris@cbimarketing.com

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