With the cost of finance remaining at record lows, and with successful businesses with strong balance sheets continuing to look towards further growth, Laurence Whitehead, Head of the MHA Corporate Finance group outlines the four key steps to a successful business acquisition and how our corporate finance experts can add real value to the process.
Identifying and Approaching Target Companies
If you choose the wrong targets initially, or approach the right ones in an ‘inappropriate manner’, your whole strategy can hit the rocks. Engage with us from the outset to help identify the right targets and to make the first approach. Potential vendors want comfort that your initial approach is serious and getting us involved from the outset adds immediate credibility to your strategy.
Valuing a Prospective Target
We will look not only at the asset base of the business, but also its potential to generate cash. Valuing a business based purely on its net asset value does not normally produce a ‘market value’ if the business is profitable. So a valuation based on a multiple of sustainable profit is normally more appropriate. Deciding the level of sustainable profit and an appropriate profit multiple both require judgement and M&A expertise.
Finding the right targets and valuing them correctly only gets you so far. How do you ensure there is a funder out there prepared to back you financially? There are a number of ways to finance acquisitions – conventional bank debt, private equity, venture capital, business angels, mezzanine, asset-backed lending and structured finance, to name but a few. We will introduce you to appropriate financiers, not necessarily just high street lenders, and will work closely with you to get the right funding structure in place.
Heads of Terms
Agreeing a detailed outline of the deal with the vendors can be time consuming and costly if it is not dealt with in a focused manner from the outset. We will work closely with you to ensure that all key issues are addressed and clarified before the heads of terms are agreed.
Once the heads of terms have been signed, it is then time to get your corporate lawyer on board to work alongside us on the due diligence and detailed transaction documents. But that’s a topic for another time…
If you would like to discuss this in more detail or if you or any of your clients are currently considering a corporate acquisition, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Corporate Finance team who are happy to help.
This article originally appeared on the blog of our member firm, MHA MacIntyre Hudson.