Do I need to acquire the whole company?
I’ve been considering the acquisition of a business that would help me to expand my own company. However, its valuation includes two parts of the organisation which are not in my field of expertise. The owner wants to sell his entire company, but I would prefer to buy just one part. I don’t want my competitors to get their hands on it, but I’m unsure as to how to handle the extra parts of the company and which functions I would get if the owner did agree to break it up.
A. Alysoun Stewart writes:
This is certainly a tough problem to face when thinking about buying a company. It is vital that you mitigate all possible risks by ensuring that the business you acquire is the right strategic fit for your own.
Your target business clearly has considerable attraction, but it is encumbered with elements that are outside your core competencies. You provide no details as to the sector or spread of activity of the target, so it is impossible to make any judgement as to whether or not the business makes sense and is integrated. If this is not the case, then it is difficult to see that it could be a transaction with which you should proceed, unless you were prepared (and could afford) to make an offer for the company and then immediately seek to divest those parts of the business that are noncore to your operation.
This strategy would be far from risk-free and would involve a great deal of management time, which I suspect is already in short supply. If you were to choose this option, you would be well-advised to have your purchasers lined up in advance, so that the entire transaction stream could be turned around more or less simultaneously.
If, however, the target business is actually an integrated offering, despite the fact that parts of the business are outside your scope, you could consider the acquisition as an opportunity to expand your expertise. If the business makes sense in the owner’s hands, there is no reason why it should not also make sense in yours. If the various streams of activity possess strong management backed with an established market presence, and you feel that it could bring benefit to your company, you might be persuaded to take the risk of integrating them into your business and launching into new territory.
If the company is as diverse as you imply, then your competitors will surely come up with similar objections to yours, and will fi nd it a less attractive target as a result. The owner may have to address the possibility that he has a company with separate, non-integrated operating divisions that may be of more value sold as individual entities. Although he would naturally prefer the far more tax advantageous route of selling his shares, this may simply not be a viable option for him under these circumstances.
Unfortunately there is no easy answer to this situation. Making the decision as to whether or not to proceed needs to involve some ruthless thinking about your own strategy and a very clear focus on the nature of the risks involved. Whatever the attractions of making this acquisition, this opportunity is certainly not worth risking your existing business for.
Alysoun Stewart is director of commercial and strategic services at Grant Thornton, the leading global accounting, tax and business advisory firm. www.grant-thornton.co.uk