Buying a Company – A Practitioner’s Guide - Mastering the skill of making a successful acquisition

Course Overview:

Creating shareholder value through the pursuit of a successful M + A strategy has been shown to be a far from risk-free activity. Buyers overpaying or using inappropriate financing methods can lead to destruction of value and in some cases financial distress.

The course covers topics of risk and return, valuation, process, investigation and integration as a practical guide to identifying and negotiating acquisitions.

Course Content:

The Drivers of Growth

• Shareholder value
• The company life cycle
  • The importance of directors recognising the value curve
• Risk and return
  • Relating risk to the life cycle phase of the company / target
• Product market growth and decline
  • Evaluating niches, substitutes, value in innovation

REVIEW: Comparison and contrast of the lifecycle of three different companies, highlighting how success or failure with acquisitions has determined their fate

• ICI
• Debenhams
• GKN

Growth through Acquisition

• Assessing the alternatives
  • Investment
  • JV
  • Acquisition

DISCUSSION: Advantages and disadvantages of each approach

• Determining the acquisition
  • Market objectives
    • Consolidating a fragmented market
    • Building the value proposition
  • Management issues
    • Assessing cultural fit
  • Price parameters
    • Knowledge of comparative deals
  • Opportunity cost
    • Is it a “now or never” deal

REVIEW: The Ansoff Matrix, a handy way to categorise potential risks in acquisition strategies

• Pitfalls to avoid
  • Realism of synergies
    • Risks of prediction, cost and achievement
  • Accounting standards
    • Who is the auditor, what principles are followed
  • Judging forecasts
    • Scepticism rules

Valuing the Target

• The accounting approach
  • NAV
  • dividend yield
  • P/E
  • EV
• The cash flow approach
  • DCF
  • Terminal value
  • Forecasting problems
  • Relevance to young / early stage companies

EXERCISE: Using different metrics to value a business

• Other factors
  • Target’s history
  • Recurring revenue
  • Intellectual property
  • Customer list

CASE STUDY: Reviewing company information to arrive at a value, taking into account qualitative and strategic factors

The Acquisition Process

• Establishing acquisition criteria
  • Target size and affordability
  • Potential synergies
  • Market / competitor impact
  • Regulatory factors
  • Shareholder impact
• Due Diligence
  • Investigation prior to offer
    • Public sources
    • Private sources
• Verification
  • Contracts
  • Accounts
  • Pensions
  • Employee disputes
  • Litigation

CASE STUDY: Reviewing summary information on a company to determine which areas need investigation and who should have responsibility for the task

• Structuring the deal
  • Earn-out / deferred consideration
  • Non-compete undertakings
  • Warranties and indemnities
  • Disclosure letters

Acquisition Integration

• Success / failure factors
• The importance of the integration team
• Earn outs and accounting issues
• Incentivising key managers
• Establishing clear reporting lines