Acquisitions are a major aspect of growing businesses. If you have capital and are looking to grow, diversify, or expand your business, then acquiring another business could be the best option for you. Whether you’re looking at a strategic, aligned, or other type of acquisition, there are some important questions that need to be answered.
What is an acquisition?
An acquisition takes place when one company purchases another company. Plain and simple. This can mean purchasing more than half of a company’s stock or assets so that your company now holds a controlling interest in the acquired company, meaning your company will be able to make decisions about what to do with assets, and the future of the company as a whole. Acquiring a company can give you greater market share, allow you to expand to new markets, and much more. In general, acquisitions differ from mergers in the fact that both of the companies will continue to exist as legal entities, while in a merger only one of the companies will continue to exist.
Why do acquisitions fail?
There are a lot of risks and challenges you could encounter when completing an acquisition. These can be things like culture clashes between the two companies, vastly different communications strategies, different ways of keeping records, and most importantly: paying too much for the acquisition. At the end of the day, all of these issues arise from a lack of due diligence.
How does an acquisition get started?
The acquisition process happens based on a few key steps. First, a strategy must be developed which will define what the main goal of the acquisition is, as well as analyzing the timing of the deal and the market in which it is taking place, and projections for the future. Second, you’ll have to develop some criteria which the ideal company that you’d like to acquire must fulfil. After you outline what your perfect acquisition looks like, you can begin searching the market for potential target acquisitions. Once you’ve found a company that matches up with your criteria, you can make contact with the companies you’ve targeted with a Letter of Intent. Finally, you’ll need to perform a valuation on the company you’d like to acquire before making an offer, negotiating the deal, doing your due diligence, creating the contracts and finalizing the purchase. If this is starting to sound like you’ll need some outside help, then you would be right.
Where can HGA Finance help?
There are a lot of issues that can arise in this process and questions that need answering. Largely these are question of finance, but along with the whole of the HGA Group, we are prepared to look at the potential acquisition through multiple lenses and from multiple angles. Some of the questions we’ll answer for you include:
- What is the best strategy to finance an acquisition?
- Can you provide an offer with a built-in tax advantage to the seller that makes your offer more attractive, while at the same time lowering the cash requirement needed to close the deal?
- Will you finance the acquisition? If so, how?
HGA Finance works with clients and has mandates on both the buy and sell side of acquisitions. We are uniquely positioned to work with the entire HGA Group to do a deep dive and prepare packages that clearly identify the strengths and opportunities, as well as to mitigate the potential risks.
As a real-world example, we recently worked with a client to help close a deal that was already lined up, but our client was unsure about how to finance the acquisition without giving up equity. Along with HGA CPA, we were able to assist in sourcing the necessary capital needed to close the deal without the client injecting any capital at all. We secured the capital our client needed without putting up any of his physical assets as security and received all of the capital he needed from a Big 5 Bank at low rates. That meant that our client was able to reserve marketable securities that could be easily converted into cash in order to pursue other acquisitions he was pursuing.
Our client had this to say about the help we provided:
“It is a huge confidence boost when several of the banks shared the same sentiment on the information package that we provided. All relevant information was included and was presented in exactly the way they needed for their risk committees to consider the deal! This was put together by Toby and his team and in no doubt was a contributing factor to getting funding!”
This is what we love to do: help our clients be more successful.