The Key Drivers of a Successful Acquisition

Successful acquisitions and mergers are often key accelerators for business growth, making them incredibly important from a strategic perspective in the current economic climate.

In 2020, the total value of completed outward mergers and acquisitions was £15.2 billion, with this figure £6.7 billion lower than the value in 2019 (£21.9 billion). This value was also the lowest recorded since 2010 (£12.4 billion), although 191 successful acquisitions were completed throughout last year.

But what are the key steps that you can take to complete a successful acquisition, and what integration aspects should be taken into consideration?

The Key Steps to a Successful Acquisition

Let’s start with the basics; as we take a look at the key steps to a successful acquisition and ask why they’re so important:

  • #1. Set Clearly Defined Objectives: Whether you’re buying or selling a business, it’s important that you enter any negotiation or marketplace with a clearly defined set of objectives. Most importantly, parties will need to have a clear understanding of value and their expectations when negotiating financial offers, so that they can assume an informed position and optimise the chances of a successful compromise being reached in the future.
  • #2. Invest Resource Into Identifying Potential Targets: From a buyer’s perspective, acquisitions usually represent a strategic move to improve their market share and create a stronger position in their chosen sector. However, this objective can only be achieved by successfully researching and identifying potential targets, using a defined and predetermined list of criteria and a comprehensive search of each potential firm’s business fundamentals.
  • #3. Seek Out Financing: On a fundamental level, all acquisitions will require funding, with most businesses likely to lack the resources to complete an outright purchase. The key here is to understand precisely how much you need to borrow and ideally seek out flexible finance, based on your budget, future projections and a clearly laid out business case for each target. 

The Importance of Integration When Completing Acquisitions

Even when these steps are followed, there’s ample opportunity for acquisitions to fail. The reason for this is simple; as many struggle with the integration process and subsequently fail to achieve their commercial goals.

According to one study carried out by Harvard Business Review, more than 70% of all acquisitions fail to achieve their forecasted financial goals, largely because the combined companies lack synergy and struggle to create value which exceeds that of the two separate entities.

To help in this regard, it’s important to start your post-acquisition integration process ahead of time, ideally before the completion of the deal and when the acquiring company’s management team is 80% sure that an agreement will be reached.

There’s a pressing need for balance here, of course, as you don’t want to start the process too prematurely just in case an agreement cannot be reached.

Cultural alignment between the two businesses is also key, as this aids the integration process and allows for more seamless operation over time.