The strategy behind smarter M&A

By on

This article appeared in the August 2014 issue of CRN magazine.

Subscribe now

The strategy behind smarter M&A

For resellers looking to expand to build the customer base and bring in new technologies and skills, spotting an acquisition requires application and discipline.

The first thing to do is to work out the sort of firm you want. Develop a profile for it, without necessarily identifying the company and see how it fits in with your strategic blueprint. This requires some work and intelligence gathering. Review all the information you can on the markets, companies, products and services you need.

Once you have developed the target profile, you can start identifying the companies that would be a good fit.

Many mergers take place between companies that already have a commercial arrangement or other relationship in place. The major exception would be acquisitions of distressed companies.

Another good idea is to approach the banks and financial services providers you deal with and circulate details about what you’re looking for. Many companies have a professional advisor on board. The best are the ones who have experience handling mergers for companies of your size. The fee is normally paid once the deal goes through.

The best target businesses usually have a number of traits. Some might be under-valued and are not using their resources efficiently or effectively, others might need some capital or a relocation to move into the next phase of development.

And how well would the products and services that they offer fit with yours? If they are combined with yours, would it improve the service offering for your customers?

Once you have identified a suitable target business, you need to register your interest with the owners or management of that business. You will need to explain why you are interested in a deal. Also, set out very clearly how you intend to finance it.

To get ready for this conversation, specialists say it is important to prepare the questions you expect in advance, and also formulate some questions about the business you want to acquire.

Doing due diligence is critical. Look at the business’ operations, financial performance, legal and tax compliance, customer contracts, intellectual property, assets and other details. Due diligence is always done when you and the seller have agreed to a deal in principle. It is has to be completed before any binding contract is signed.

During your discussions, find out if the owner of your target business already has plans to sell. Do they intend to remain involved in it? Consider their motives for selling, that could be quite critical to the success of the deal.

Another important point is to consider very carefully whether you could work well with the target company’s managers and staff. Personality differences can lead to mergers failing. Cultural fit should be an immediate focus for both firms. You need to ensure that both companies are heading in the same direction and that the rapport between the principals was solid.

The key driver has to be the future integration of the business to create value after the deal. The other critical part, of course, is that the finances have to add up. There are too many acquisitions driven by ego and debt.


 

CASE STUDY: UXC

UXC, a publicly listed company, is a serial acquirer. Over the past 12 months, it has made seven acquisitions and over the last 15 years, there have been 100. 

Recent acquisitions include SAP house White Labelled in October, followed by Keystone in December for $24 million. In the same month, the company made its foray into the US with the buyout of Tectura, a Microsoft Dynamics provider.

Ralph Pickering, UXC’s head of M&A, says it all comes down to finding the right fit. “The very first question is where it fits for us from a strategic point of view.

“Its growth potential is very important and I think in this world it means they need to have a number of good chapters ahead.

“We have never done a transaction that is greater than 10 percent of [our size] so we would regard ourselves as a serial acquirer of opportunities that fit very closely with our core strategy,” he adds.

“Our criteria is based around that business already established, is profitable and having good growth potential and management, so that we can clearly understand the next chapter and management wants to join us. It makes life very simple.”


Leon Gettler is a senior business journalist who writes for a range of newspapers and journals

 

Got a news tip for our journalists? Share it with us anonymously here.
Copyright © CRN Australia. All rights reserved.
Tags:

Most Read Articles

You must be a registered member of CRN to post a comment.
| Register

Poll

What does your business want for Christmas?
Skilled people who'll take Elves' wages
A stocking full of good leads
Please, Santa, drop some cash down the chimney!
All status indicators green like misteltoe, none red like Rudolph's nose
A peaceful, relaxing time for the team and our clients, and all their families
View poll archive

Log In

Username / Email:
Password:
  |  Forgot your password?