Target acquired
I often hear business owners tell me that they want to buy a firm that looks like a smaller version of their own. That’s it. No other detail. We agree on the fact that you should want to acquire a business that’s a great fit with yours. However, further work should still be done to specify what your ideal acquisition target looks like. The process of clarifying what a good fit is will help you recognise it when you see it. Here are a few thoughts to help you define your ideal target more specifically:
What are the main features?
You might think this is obvious; the type of client you want, the proposition they are used to receiving, service standards, qualifications of advisers, and location. But what about other features? Some less obvious items to consider are the technology they use, the processes they follow, whether these processes are written down and adhered to. The general financial management of the firm, their reporting ability and regulatory history are all important items to consider. It is a good idea to have a robust list of criteria.
Do you really want an exact match?
While you might think you want an exact match, what you probably want is something complimentary. Every firm has strengths and weaknesses and examining your own can help you to find a complementary set of skills in a potential target firm.
If it’s not perfect, where would you compromise?
No two firms are alike and if a business ticks eight out of ten boxes then you should be able to identify which are deal-breakers. Some obvious deal breakers would be misalignments in financial planning approach, approach to high-risk products, and investment management philosophy. Factors like culture are harder to assess but equally important.
Have you run the numbers?
While it sounds obvious, you should create financial forecasts for your firm and then do the same for your ideal target firm. Forecasting both businesses together will help you understand what your ideal acquisition is likely to do to the performance of your firm over time? It will also help you to assess where the drivers of value are for you as a firm.
If you lack a clear profile of what a good target firm looks like, you risk making two mistakes. You could miss a deal that would have been a perfect fit, or worse yet you could do a deal with the wrong firm. Do your homework before you start because it will pay dividends later, literally and figuratively.