1. The strength of the target company
The first factor to consider when making an acquisition is the strength of the target company.
And this includes factors such as revenue, profitability, and market share.
To put it simply, you'll want to make sure that the target company is healthy and has a good track record before moving forward with the deal.
Moreover, the value of the target company needs to be taken into account. For instance, factors such as its assets, liabilities, and cash flow.
To do this, be firm and audit everything, and yourself. And if a company doesn’t allow you to take a look at everything, then quite frankly, they’re not going to be worth your time.
2. The cost of making an acquisition
Secondly, you want to take into consideration the cost of making an acquisition.
Usually, this includes factors such as the price of the target company, due diligence costs, and legal fees.
So, make sure you have a clear understanding of how much it will cost to complete the deal before moving forward.
Other questions to ask yourself are:
- How will your two companies make profit?
- Will you need to secure any additional investments?
- Can you cope with the salaries for all of the employees combined?
Ultimately, you need to take time to go over your own finances as well as the finances of the other company.
3. The synergies between the two companies
They say opposites attract, but that’s not always the case. Especially in the business world.
Most likely, the company you’re thinking of acquiring will have their own way of doing things.
So before you decide to become one, consider the synergies between your two companies and do some research into the culture.
Simply, company culture plays a massive role in the success or failure of an acquisition; company cultures that are polar opposites can create tension and confusion.
Other factors to take into account are things like complementary products and services, common customers, and shared values.
Overall, you'll want to make sure that both companies are a good match before moving forward with any deals.
4. The teams of the target company
When making an acquisition, you’ll already have employees and you’ll be gaining even more.
That said, it’s important to know how many employees the other company has, what their roles are and the departments they currently work in.
Then, you will be able to evaluate whether each department has the right amount of people for maximum efficiency, assess whether some employees will be willing to move departments, or if new departments need to be defined.
Employees aside, you want to take note of the upper management roles as well: will new CEOs be assigned? Or is the boss fine with becoming a regular employee?
Here, you will need to think about their experience, track record, and ability to execute on your plans, and define those roles to prevent any confusion.
5. The legal and regulatory landscape
Finally, it's important to consider the legal and regulatory landscape.
Unfortunately, it’s not uncommon to experience potential bumps on the road when closing an acquisition.
And one thing that is often overlooked is legal agreements with customers, clients, vendors, lenders, equity owners and so on.
For instance, factors such as competition law, antitrust law, and data privacy laws, need to be assessed to check whether they’re in line with yours.
So, make sure you are aware of all the relevant regulations before moving forward with any deals.
Final thoughts
To conclude, acquisitions are harder than they seem, and these are just a few of the factors to consider when making an acquisition.
Above all, it's important to do your homework, build a post-acquisition strategy and understand all of the risks and rewards involved before moving forward.
If you're thinking of making an acquisition and would like to discuss acquisition funding options, please feel free to get in touch today to discuss.
About SME Capital
SME Capital was founded to support the growing number of SMEs who face difficulty or frustration in accessing capital through traditional methods. We understand the importance of real and trusted relationships in the SME lending market, and have dedicated Regional Directors based across the UK. By combining traditional lending expertise with the latest in data analytics, we are supporting established UK SMEs with their long-term objectives and business ambitions.
The Market We Serve
SME Capital provides SME funding for businesses which are integral to the UK economy. We support UK businesses able to demonstrate recurring revenues and a track record of profitability. They often have unique needs that fall between traditional lending routes and the automated response from online only business loan lenders. We cater to businesses with strong cash flows, assessing each business on its strengths, rather than focusing on the asset base.
