Mercer & Hole’s Business blog - Due Diligence

I have been reading the press coverage on Rangers' administration.   It made me think once again of just how important it is to know what you are buying. I am not suggesting for one moment that proper due diligence was not undertaken on the last acquisition of the football club.   But any buyer can come across issues.  In any instance when buying a business proper due diligence - accounts, commercial and tax - needs to be undertaken.  If you are looking at buying a business with tax issues you need...

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The SME businesses which feel that they will weather the ill effects of the recession, are beginning to consider long term strategies for growing their businesses. With struggling competitors, suppliers and even customers, growth by acquisition currently offers a serious prospect of rapid expansion at attractive valuations. A cost effective due diligence service can add value to almost any transaction. There is little point in an SME undertaking a ‘full-blown’ due diligence exercise - which for bigger deals will cover not only financials, but specific work on operations, staff, pensions, properties, legals and many other issues....

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Once you have made the decision to make an offer to invest in, or acquire, an SME you are probably past the point at which your accountant should be brought in to the process. Not only can the accountant provide sound advice on the ‘corporate finance’ aspects (for example the valuation, key terms etc), it is crucial to set an appropriate structure from a commercial and taxation perspective.  This is particularly important in distressed situations. Mercer & Hole have recently advised on a distressed management buy out – under the initial terms, the acquirers were effectively...

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I read a very interesting article in today’s FT regarding buyers compromising on the quality of Due Diligence.  The article illustrates the short cuts taken in the Due Diligence process.  Large deals took only 80 days to complete in 2008, down from 142 in previous years (according to Towers Perrin). Whilst the article focuses on the bigger M&A transactions, the principal is the same for buying any SME business. Reducing the level of scrutiny into a prospective purchase carries enormous risks – the article refers to the infamous ABN Amro acquisition as ‘one of...

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As the uncertainty in our economy continues, there are still many who perceive that asset prices (in a number of classes) are undervalued. There are many SME businesses which fall into this category – but to the naïve, or badly advised, buyer, the process is fraught with danger which can erode the value of an acquisition. I have frequently mentioned M&H’s previous acquisition successes, and very few advisors are in the unique position of having risked their money and accomplished their growth goals. In the final part of this trail of blogs,...

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I have blogged in the past on Mercer & Hole's achievements in making acquisitions. We have acquired whole departments from international accounting firms, and have successfully integrated these staff and their clients into our ethos of ‘Big firm expertise with a personal service’. There are many risks involved in buying a company, and the likelihood of failure is surprisingly high. In my last blog a week or so ago, I had taken our hypothetical acquisition to an offer being accepted. At this point, the action intensifies. Accountants are appointed to undertake Financial Due...

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In my recent posts, I have been talking about how an acquirer can maximise their return on investment by avoiding the standard pitfalls in a deal. I have mentioned the experiences of Mercer & Hole in making acquisitions, and how we have ultimately succeeded by aiming at niche businesses, realistic negotiating and by integrating into the existing M&H ethos.  We had reached the point in our hypothetical deal where the seller had provided enough information to make an offer. It is important to invest significant time in the offer itself. The key issue is obviously...

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In my previous blog I mentioned the failure of the majority of acquisitions to generate a return for the buyer. Buying a company is a different process to anything else you have experienced. The wrong move at the wrong time will cost the deal – even the right move at the wrong time could cost ‘hundreds-of-thousands’ of lost value.  I finished the last posting at the point where a search for acquisition targets had commenced. The typical acquisition targets are competitors, suppliers and even customers. Businesses in parallel markets should also be considered...

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Mercer & Hole have an inside track on making acquisitions work - our partners have the direct experience of spending their own hard earned money. We have acquired several businesses including smaller practices and whole departments from one of the international accounting firms. We have made this a success by applying our long standing philosophy – ‘Big firm expertise, with a personal service’. Many experienced and successful entrepreneurs can find the acquisition process difficult – quick judgements need to be made throughout the process and for the inexperienced it is easy to make well meaning but...

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Due Diligence is an involving task, where the old idiom ‘…can’t see the wood for the trees’ is true. It is very easy to get immersed in the detail of a transaction – checking that balance sheets balance, existence of assets, invoices are not shredded etc etc. However most value from the DD process is derived from standing back and pondering – is my client getting a good deal? Before you embark on detailed financial due diligence, I wholeheartedly recommend you spend half a day with your accountant and your offer letter (or heads of...

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