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Many businesses seek to grow organically, however this takes time and an acquisition could be that piece of the proverbial jigsaw that accelerates the process. Purchasing an established business tends to involve less risk than committing resources to developing new products, processes or accessing new markets.
If the acquisition strategy is well conceived, planned and monitored it can enhance the stability of the enlarged operation, creating wealth for the owners.
As the economy emerges from the pandemic, M&A advisers have noted increased activity and opportunities (‘pipeline’). There are a number of factors informing on the market:
Brexit;
The pandemic;
Low interest rates;
Availability of funds; and
Rumoured changes to Capital Gains Tax (CGT).
Accepting the last fifteen months has been extraordinary for many businesses, it has demonstrated the need to be innovative, agile and adapt to market conditions.
Business Asset Disposal Relief (formerly known as Entrepreneurs Relief) is available to qualifying individuals, however the lifetime allowance was reduced from £10m to £1m in March 2020. There is much speculation that further restrictions will be imposed once the economy reboots and the Government seeks to recoup its pandemic borrowing.
Acquisitions fall into the following broad categories:
Consolidation - enhance market share whilst removing costs;
Access to new technologies - acquiring expertise it is unable to develop; and
Access to new markets - diversification of products and/or customers.
A carefully reasoned and documented acquisition strategy should result in a cohesive plan that delivers desired outcomes. Understanding the motivation and anticipated outcomes for the approach will ultimately lead to more achievable game plan.
Whilst many high street lenders have tightened their lending criteria, there are a multitude of alternative finance providers, who are not subject to the same policies, meaning access to capital for those with vision.
Yes, there are examples where the acquisition hasn’t delivered the desired outcomes, however a number of factors might underpin an unsuccessful investment such as, unrealistic expectations, a seismic change in the market or insufficient financial and commercial diligence. Another reason, being the businesses were not culturally alligned, something that is more difficult to evaluate however it should be considered at the outset.
An acquisition isn’t for the faint hearted, however if managed correctly it can result in wealth creation.
If you would like to learn more about our services please feel free to contact us.
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