Dan Adler, partner at Lyceum Capital and BTD partner, David Olsson outline their proven approach to growth-driving M&A.
Acquisition provides a clear route to adding capability, skills and scale in pursuit of realising your growth strategy. But identifying and buying the right business at an acceptable price is not enough to guarantee you reach your goals.
Acquiring well requires experience and knowhow to avoid the plentiful risks – such as rising costs, prolonged integration, departing talent, and increased customer churn – that destroy value. To ensure outperformance through M&A, any business, regardless of size or sector, will better their chances of success by observing the following six tried and tested steps:
1. Determine your purpose
Systematically map your target market – whether it is the one you already operate in or an adjacent one. “This is key,” says BTD partner David Olsson. Do your research, including meeting business owners, to gain a solid understanding of the kinds of businesses that are out there.
It is vital you are clear about the purpose of the acquisition. “Knowing exactly why you want to acquire will help you focus when trying to identify potential companies,” says Olsson.
Critically, your leadership team needs to be aligned on the “currency” of growth, which could be geographic expansion, driving profit, grabbing market share, or filling a product hole, says Olsson. Then it comes down to which businesses are available, their size, ascertaining price expectations, and assessing whether you can afford to buy.
2. Make your offer
You have got to have listened to what’s important to the owner and tailor your offer accordingly. Then be quick and move with conviction
By the time it comes to structuring your offer, you will have established whether the business owner plans to cash out and at what price, or alternatively, whether they are sufficiently engaged with your vision to become a partner in your future strategy, says Lyceum Capital partner Dan Adler.
“You have got to have listened to what’s important to the owner and tailor your offer accordingly. Then be quick and move with conviction,” Adler says.
3. Be clear
Striving for maximum transparency is crucial to the success of any deal. It is useful to walk around the business gathering information on a range of factors including management dynamics and interaction, office culture, and depth of talent, says Adler.
When outlining the shape of the transaction in the heads of terms, engage in the detail to avoid any future misunderstandings, Adler says. “Have the challenging conversations now, for instance about pricing, deferred consideration, earn-outs or management remuneration,” he says. This will facilitate finalising the share purchase agreement later without any surprises.
Through external due diligence (DD) determine whether the business has been run “with integrity and probity,” Adler says. Employ an external advisor to scrutinise the company’s financials, where tax arrangements can often throw up issues. Examine legal obligations and agreements, where control conditions can be a sensitive area, and confirm how the business is perceived by its customers.
At this point, there is also an opportunity to revisit your assumptions about the future operating model, says Olsson. In short, “is there anything in the DD that is going to stop you realising synergies or growth?”
4. Confirm arrangements
Communicate financing needs early in the process, says Adler. From Lyceum’s perspective, having completed more than 110 add-ons, “we do a lot of work at the outset of any platform investment to make sure we have a banking partner on board who understands the buy and build ambition of that particular company,” he says.
Getting the right people on the transaction on both sides facilitates any deal, says Olsson. “If a target’s finance director is not interested or capable of handling a transaction, and you can pick that up in early conversations, then you know how much support they need and you can plan for it,” he says.
Do not make the mistake of thinking agreeing legal terms is a box ticking exercise. “Be smart and thoughtful; test assumptions,” says Adler. “There’s real value to be gained by paying attention to clauses around completion and working capital, for example.”
Some vendors may engage in last minute horse-trading over the price, which you must try to contain, adds Olsson. But the bigger risk is to talent retention. “If people key to the realisation of the benefits [of the deal] decide to leave, that might be a problem,” he says.
5. Work as a Team
Collaboration and communication are vital. “Establishing an acquisition team helps ensure coordination and continuity pre-and post-deal,” says Adler. “This means the same individuals that worked on the due diligence and planning are responsible for all post-acquisition integration activities as well.”
A team is most effective when it includes senior executives across a range of business functions, including HR, sales, ops, tech dev and finance, Adler says.
When Lyceum portfolio company Bellrock, a facilities manager, acquired property asset management software provider Concerto, a team of around 20 senior executives from the two businesses and Lyceum, as well as external specialist advisers, all worked together to execute the transaction and integration to ensure the planned benefits materialised. Concerto was one of five transactions the business completed in just three months. Success was only possible because of close teamwork.
6. Complete and integrate
Leaders that inspire and engage, communicate, and demonstrate attention to detail throughout the M&A process deliver long term benefits significantly more often than those without these abilities.
How you handle closing the deal is critical. “It’s about people and Day One [of the 100-day plan],” says Olsson, adding that buyers need to listen to stakeholders and employees, including those in the acquired business who may be wondering about their job security. “Be human, talk to people, be present and embrace the culture of the acquired business,” says Adler. “It is vital to position the deal as an opportunity.”
The success of any acquisition depends on leadership behaviour, says Olsson. Leaders that inspire and engage, communicate, and demonstrate attention to detail throughout the M&A process deliver long term benefits significantly more often than those without these abilities, he says. This is a notable achievement in a process where success is far from guaranteed.
Case Study: Bellrock Buy and Build
When Lyceum acquired facilities and property management company Bellrock four years ago, its vision was to transform the established business into a technology-enabled, customer service-driven supply chain manager.
Since 2013, through investment in technology, talent and acquisitions, the company has expanded to around 500 employees undertaking about half a million FM jobs a year amounting to more than £110 million of client spend.
Acquisitions are crucial to the business’ growth strategy. To date Bellrock (with support from Lyceum and BTD) has completed six add-ons, including Concerto, a Cheshire-based property asset management software company that was instrumental in ramping up Bellrock’s functionality and consolidating its technology backbone. The acquisition also opened avenues to upsell to Bellrock’s customer base of local authority clients.
The acquisition of Concerto was followed in May 2017 by Lyceum’s single biggest investment in the business so far, the Bedford and York-based Profile Consultancy. The company is a leading UK service charge expert managing £250 million of charges a year for clients in the retail and leisure sectors. Looking forward, future add-ons are on track to bring on board additional capability.