Buying a Business: Approaching your target
In the second of a series of guides looking at how to buy a business, Moore and Smalley’s corporate finance senior manager, Ian Waddingham, offers tips and advice for approaching an acquisition target.
First impressions are crucial and the way you make your first approach will probably determine whether a fruitful dialogue ensues, or you are rebuffed.
Keep in mind that your interest in the target may well be totally unexpected from the point of view of its shareholders. Caught unawares, their instinctive reaction may be to turn down an approach if it is not handled carefully. If possible, one idea might be to send your letter to their home rather than business address.
The success of a potential acquisition often hinges on the thoroughness of your preparation. You should evaluate the backgrounds and incentives of different shareholders so you can work out who is likely to be most receptive to your approach and why.
Timing is also crucial – approaching a business during its busiest period of the year may mean that the approach gets filed in the bin. So do be persistent and follow up any approaches if you receive no reply – but make sure that you don’t cross the line and be regarded as pestering them. This can be an extremely fine line.
Equally important is to determine who is the most suitable individual to represent your business. This could be your corporate finance adviser, a member of your board, or a trusted third party who is familiar with the target company’s shareholders.
Approaches are more likely to be well received if the strategic thinking behind the potential acquisition is explained in a businesslike but tactful way, focusing on synergies and benefits such as operational fit and cultural similarities.