WHAT IS THE MAIN STRATEGIC REASONING FOR ACQUIRERS OF A BUSINESS?
Acquirers do not buy the past performance of business. They buy the future performance of the business, but use the past performance as a guide (along with other things) to establish the likelihood of the future profits.
Acquirers can have diverse motivations:
- ego or status
- a carefully thought out strategy
opportunistic reasons, e.g. see a competitor of failing business up for sale and think
- a good deal may be had by acquiring it
- a Seller (or the Seller’s Advisor) has managed to paint a vision for the Acquirer of what the end result will look like of the two businesses once they have been merged. The case will appear convincing, such that the Acquirer will believe that, by acquiring, he or she will be able to generate a value significantly greater and faster than the alternative of continuing organic growth.
Whatever the starting point, once an Acquirer is “in play” and considering an acquisition, then it is the Acquirer’s view of how the business will run under new ownership that really matters and if an acceptable profit cannot be established in so doing at the outset, a deal is unlikely to happen.
An Acquirer will seek to justify the purchase price based upon all sorts of criteria which are rarely the same from one acquisition to the next. These criteria always end up being translated into costs of acquisition or additional profits. These will be judged and validated and if that ends up meaning the Acquirer can add value by acquiring, then the question is – “at what price?” The answer invariably is – “the post-acquisition value of the acquirer will be greater than the pre-acquisition value of the acquirer”.
If that price does not meet the Sellers’ expectations then, depending upon how close the views are, either a negotiation could take place or nothing further will occur.
What UK Business Advisors Acquisition Planning advisors can do to assist your business. Real life experience, strategic advice and tactical support.
- Develop the value enhancing strategy
- Action-focused Business Planning
- Assistance with what follows next – a Business Support Programme to help you implement and deliver the plans
- Fund raising and acquisitions assistance
More to follow next time. Please feel free to get in touch with Peter Kroeger for more information.