Expert: David Swanwick and Joe Blackburn of Dimensional Investors. Facilitator: Martyn Laverick Divisional Director M&A, Paul Harper Search and Selection
Key Takeaways:
- The right cultural fit is critical when acquiring a business
- Firms are buying for different reasons
- A successful acquisition is measured in many different ways and over different periods of time
- Very active market which can waste time and increase costs in the M&A space
Context
The right cultural fit is critical when acquiring a business
For businesses of this size a cultural fit was the key aspect that attendees stated must be right. This spanned across how clients and staff were treated, what were the priorities of the vendor were (if just money focussed then most firms would have a concern over this) and how the vendor applied their culture through their business. It should also be stated that many vendors also rank highly the culture of the acquiring firm as well. This is often difficult to put down on paper so the earlier both parties can start to have conversations the better as this gives both sides a better feel of each other.
Firms are buying for different reasons
A good question was raised as to why firms are acquiring. Given the different types of businesses in the session there were a different reason. From some of the networks, service providers etc the main reason given was the protection of the back book. As firms sell, they are seeing them lose market share so acquiring firms that use their services etc is a logical step. Other firms in the session saw this as an opportunity to grow and to make the most of the consolidation that is happening in the market. Many firms stated a preference in buying businesses in the sub £300m AUM space as deals above this size caused more issues and were harder to make integrate etc. One group of firms that were discussed that were not present were the PE backed consolidators whose reason for buying is a pure growth play to hit shorter term i.e.4-6 years financial targets.
A successful acquisition is measured in many different ways and over different periods of time
It was agreed that just getting a business acquired did not guarantee success. Attendees came up with several measurements that they used to gauge success:
- Good levels of client retention
- Clients are in a better place with better levels of service
- Good levels of staff retention
- Back offices integrated successfully
- Financial goals meet according to plan
- Vendor gets the full acquisition price agreed
The timescales for these measurements varied depending on the size of the deal but the first 12 months was certainly viewed as the critical time period in which an acquisition could be viewed to be on the right track or not. The majority of attendees felt that the more work was spent in understanding culture, the client proposition, how the business works, the needs of the vendor then the greater the chance of success. One area that was common across many firms was the role of the vendor going forward. In the majority of cases, it was felt that it was better for the business as a whole if the vendor left the business in the quickest time possible after hand over.
Very active market which can waste time and increase costs in the M&A space
Talking to the right potential vendors and getting to either a quick yes or no to continue was very important for firms. The issues they all seemed to be facing was the high level of competition for good quality businesses, the fact that brokers will have the same business talking to many different acquirers and that prices were being driven higher which meant some firms did not want to compete on just price. It was agreed that they had to speak and engage with a lot of businesses in order to get one acquisition. The key step was to be able to get the potential acquisition to a position of exclusivity as soon as possible.
