At ECI we’ve supported our portfolio to make c.70 acquisitions since 2010. No two acquisitions are ever alike but having supported a number of management teams to deliver their first acquisition, we’ve seen some common steps and decisions along the way:
1. Will M&A deliver better ROI for your strategy?
Before any company starts thinking about M&A strategy, the first step is to consider the overall business strategy, and whether M&A will deliver the best ROI. If you’re thinking about adding new capability or launching in a new geography, M&A may well be the best option. However, you may also be able to execute on those strategic goals organically.
Things to consider include:
- What are the market dynamics and availability of acquisitions?
- Are you prioritising building scale quickly?
- Or could the funding set aside for that acquisition help your business growth further and faster if used elsewhere?
We regularly work with management teams to help come to the answers to such questions, using market and company data.
2. M&A strategy
Once you’ve determined that M&A is the best strategy for acquiring new capability, broadening the addressable market in a new geography, or building scale, what next?
- The first thing is to develop an M&A origination and execution plan that can deliver. We always like to have the conversation about strategy as early as possible. Often, we’ll talk it through with management teams before we even invest, and those conversations can carry through to the first strategy day. It means everyone is ready to hit the ground running and help the team deliver on their M&A objectives from day one.
- In some industries, the size and the volume of potential acquisitions can seem overwhelming. Understanding your key growth initiatives and what you need in an acquisition will help bring focus to the pipeline.
- Understanding how you are looking to integrate post-deal and the impact on your customers will help to further refine criteria.
- That said, it’s rare the ‘perfect’ acquisition exists. You may find that your strategy evolves in response to what’s out there. A good M&A strategy will flex over time in response to business needs and market availability. Keep discussing and keep iterating!
3. Sourcing M&A targets
- We believe it’s important to have a ‘total market view’ of the sector you’re looking at acquiring in before building a focused pipeline from that long-list.
- This is likely to include businesses you already know but having that view of everything that’s out there will inform your approach. It also will give you greater conviction in the right acquisitions.
- At ECI we use our experience and proprietary AI tool, Amplifind™, to help take the heavy lifting out of mapping the market, whether the space in question has a limited number or tens of thousands of market participants.
- This mapping process is something we recently used to support Peter Sweetbaum, CEO of Content+Cloud, on his buy-and-build journey. This work, alongside C+C’s network, resulted in six acquisitions during our investment. Peter commented, “The impact of the acquisitions on our growth was transformational and what we were able to acquire was really unique capability, at the right price with the right organisations that made a difference to the overall growth trajectory and the outcome.”
Successful M&A requires focus and conviction, but it’s important to start with a full market view and then narrow down and honing your criteria further. Some criteria might be available externally, such as employee numbers which can give a view to scale. Other areas such as cultural fit, will require a conversation and access to the people within a business.
4. Building relationships
- So, you’ve narrowed down the potential acquisitions that you think could be a good fit. Now it’s time to start building relationships. Those relationships aren’t just with the founders, CEOs and key decision makers. There will also be other market participants, brokers and advisors who might bring you deals.
- We often help management teams with that initial outreach. That can be helpful as a business owner may not want to speak to a direct competitor initially. Plus, it can be helpful to take something off the to-do list of the busy CEO’s, MDs and CFOs we work with!
- If you are doing the outreach yourself, try and think about what the individual would like to hear – personalise it and say why you’re excited by the potential fit with your own business. We all have increasingly full inboxes, so keep it short.
- Where an email isn’t suitable, it’s worth trying to seek an introduction via a mutual contact. Seeking out a CEO at an industry event might be even better.
- Relationships are much more than that first meeting. Make sure you invest time here. When you think there is a business you like, get on the train/plane and go and really get to know them. This will help you understand their ambitions and how they fit with your own. This will give you a much better chance of agreeing a deal.
5. M&A pipeline management and a single source of truth
- Whether your pipeline has a handful, 10s or 100s of potential targets on it, it’s important to have a ‘single source of truth’. When you’re at the start of your M&A journey a spreadsheet is just fine. But you may choose to move to a CRM system if M&A becomes core to your growth journey. Either way, agree who is going to own this. Owning includes making sure each meeting, assessment and next action is recorded.
- At ECI, we’ll often have dedicated monthly M&A catch-ups with the board over the course of an acquisition project. This gives us a chance to focus on priority targets, discuss how to convert them and refine the strategy. We’ve found it’s useful to separate these so that management teams can focus on M&A without it getting lost within other board matters.
- Remember, building a pipeline takes time. It’s rare you ring up a business owner and find there’s an opportunity to do something straight away. You’ll need to remember to get back in touch, continue to evaluate opportunistic inbounds and try to unlock other high priority targets. Moving acquisitions along a pipeline is a bit of a juggling act!
It can be easy in that situation to feel like you’re part time M&A Director, as well as a full time CEO or CFO. If M&A is high priority, you may choose to recruit additional acquisition resource. We’ve helped teams to build those in-house M&A functions so they can give acquisitions focus and really drive the pace.
6. Doing the deal
- We’d recommend tailoring your approach to an acquisition opportunity depending on whether it’s a competitive process against other bidders, or an off-market conversation.
- Where it’s a competitive process, you will need to balance the time spent diligencing the business with focus on winning the opportunity.
- There are key questions to consider:
- How important is price?
- What have similar businesses sold for?
- Who are other potential acquirers? How can you differentiate?
At ECI, we look at over 600 potential deals a year, so can share what we’re seeing on deal pricing and structuring.
- Diligence can be time consuming! Knowing the financial and legal dd providers you’d like to work with ahead of time can save you many hours. Investors like ECI will have recommendations as well as being able to help with the ‘heavy lifting’ that diligence entails, so that you can continue to drive the core business forward.
- Another time saver when you’re looking to make more than one acquisition is compiling ‘boiler plate’ resources such as timetables, NDAs and information request lists.
7. Post-integration strategy
Integration is the last step, but it’s something that is important to think about in your conversations with vendors during the M&A and due diligence. If these considerations are left until post-acquisition, it means its harder to hit the ground running. But also it’s harder to assess whether a potential acquisition target fits with your customer’s needs and overall strategy.
Key integration questions include:
- How will the teams integrate culturally?
- How will commercial models (e.g. sales incentives) be made consistent across the group (if indeed they need to be)?
- Which tech systems will be used to ensure consistency of data?
- What will the roles of key individuals be going forward?
- What is the brand strategy?
- Is the combined group going to stay multi-brand?
- How will you drive growth through potential cross-sell and up-sell of products and services?
There is no right answer to these questions, but it’s much easier if you have a viewpoint prior to the deal and this is often facilitated through thorough pre-completion planning and focused due diligence.
Much like the initial deal process, sticking to a timetable for integration is important. For larger projects you may want to bring in Project Management Officer support. It’s something we frequently support our portfolio on, understanding integration priorities and then connecting teams with the relevant support.
So why go through these steps at all? Bolt-on acquisitions can be a great way of going further faster by bringing scale, internationalising, or adding capability. In the last decade we’ve helped 20 portfolio companies make 70 bolt ons – it’s something we’ve seen add value time and time again. If you’d like to chat about how ECI can help you with your M&A ambitions, get in touch here.