Practical M&A advice - making an acquisition

To grow by acquisition get the early stages of the process right saving cost and anguish later. 

1.        Planning; Do you have a strategic intent that your acquisition will support?  If so you should know what type of business you seek.

2.        Get your own house in order; if you are not fully in control now, you surely won’t be during and following and acquisition. Are you management and systems up to it?  Make the necessary investments first.

3.        How much to pay?  What is your target worth?  Research on what others are paying for acquisitions in the sector will give a benchmark, but beyond that what you can pay will be a figure quite unique to your business, given any synergies that you have with the target

4.        Funding.  Some funding can be raised against the balance sheet of the target, but what can you contribute?  Could you raise venture capital?  Best of all will the vendor allow you to pay some of the consideration on a deferred or earn-out basis.

5.        The Pareto Effect.  People waste time on deals that don’t happen.  The trick is to make a quick assessment of a realistic fundable price, and strike an early deal with the Vendor.  Of course this is not always possible and some good deals take months to put together. 

Approach acquisitions with clarity of purpose, and to do some quality practical thinking about price, funding and negotiation.  Do it that way and it might even be fun!

This item originally appeared in Business Weekly M&A supplement in February 2006