Acquisitions - Avoiding the failures (3)

Conduct commercial due diligence to verify the viability of the integration plan

Ensure your due diligence includes considering the soft issues e.g. culture, personalities, staff morale and customer and supplier attitudes.  This will identify risk areas and highlight the barriers to implementation of the integration plan, e.g. IT incompatibility, cultural differences, staff attitudes and salary differentials, and varied credit terms.  By undertaking extensive risk analysis and quantifying their effect and expected additional costs, the acquirer may seek to adjust the price, seek appropriate warranties and refine their integration plan.

Attention to detail is vital.  So if you are acquiring to access a customer base for marketing what would be to them a new product range, make sure you will be accessing the right decision-makers.  I was retained to act for a bed manufacturer that sought to dispose of a sofa-bed subsidiary, which it had previously bought with a view to accessing prospective new major retailing customers.  The previous acquisition had failed to generate the expected synergies because the bed buyers (bedroom furniture) at these customers were different from those that undertook sofa-bed purchases (lounge furniture) and the incumbent sales force were insufficiently trained and incentivised to exploit existing contacts to expand their marketing to other departments.

Install reporting and control systems to monitor and review progress

Specific key performance indicators should be developed for the value-critical areas.  For example, average sales of new product to the acquired customer base, budgetary targets for overhead rationalisation and average percentage reduction in unit product supply cost.  These should be incorporated in to the budgeting process and the regular strategic results reporting to the Board.

If you would like to discuss any of the points raised in this article, or learn more of the acquisition process generally, please contact Perry Lewis on 01476 585582 or e-mail prl@mission-corpfin.com.