If you are planning to acquire a business, below are the broad steps that will guide you through the process:
- Preliminary Mapping and creating a Shortlist
You should run a detailed process to map, identify and shortlist your acquisition targets, basis your business strategy. - Due Diligence
Normally, this will be done in two phases. One will be before agreeing to a “Term Sheet”. And another thereafter, which will be a detailed one, before signing the definitive agreements. Some companies offer virtual data room and some physical data room. In either scenario, your preparedness is extremely important to run this process swiftly. Remember, if a company has decided to sell, there is a high possibility they would be talking to others too. You need to therefore check well and act with speed. - Business Model, with restructuring plan
As soon as you have access to information from the target company, you should develop your own detailed financial model and run sensitivity analysis. This should be a very detailed plan. It should also include all the elements of restructuring that you have envisaged, along with timelines, to understand the impact on cashflows, profitability and viability of the acquisition target. Ideally, this should be built as a month on month plan, that runs for 3 to 5 years. - Deal Structuring
It is not just the value but how the overall deal is structured, that is important to making a successful acquisition. As the saying goes, ‘the devil is in the details’; look at all the aspects of the transaction. Utilise learnings from diligence, from the business model and through interactions with various stakeholders, to get a 360 degree view of the deal terms. At this point you should ensure that you have your best team helping you with analysis and the negotiations. Infact, it is quite useful at this stage for you to counter with structures that results in a win-win deal for all. - Definitive Agreements
The next important step is to draw up detailed transaction documents. While there are standard formats and a good law firm can help you with the required documentation; you should capture key assumptions to the business understanding as part of the seller’s representations and warranties. You should also incorporate relevant aspects from your findings, or shortcomings identified during the diligence process. You should visualise all worst case scenarios, and capture appropriate terms in the agreement to address eventualities. Note that, to close the definitive agreements, you will need to deploy good negotiation skills. Further, you might also need to be practical and flexible on certain aspects. - Post Acquisition Integration Strategy
Valuation arbitrage happens when your business garners higher valuation multiples, as compared to those of the acquisition target. In such a situation there could be a significant value creation opportunity by undertaking synergistic acquisitions. - To gain access to capital
Basis the plan developed, you will now need to ensure that it is being executed as intended. Initial days are extremely crucial, and you (along with your senior team), should give your undivided attention in making the acquisition a great success. Make it a point to meet all the employees, key clients and vendors. Have a comprehensive integration plan to avail the desired results in a time bound manner.
