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10 top tips for SME acquisitions II

In my last posting I gave the first 5 tips, which covered the stage before an offer for a business had been made. My next tips pick up after the offer is accepted.

During Due Diligence :

This is the stage where you test the assumptions you made when you put together your offer.

6. Appoint a good accountant and lawyer. The potential long term costs of not taking appropriate advice should be considered very carefully!

7. Go back to your offer and the assumptions you made. Ensure the information provided by the vendor can be verified and corroborated by other data.

8. Consider the earnings figure you were presented with when you made your offer. Is it really sustainable? Will it be affected by exchange rate movements? Are contract terms due to change, will cost rises be matched by increases in revenue?

9. If you are acquiring shares, consider the potential for hidden liabilities. The most common are taxes – including corporation tax, VAT, PAYE, National Insurance etc. Also look at ongoing litigation, bonus arrangements, customer overpayments and any other matters appropriate to the business.

10. Spend a lot of time on your financial projections. Assess the impact of potential problems (reduced sales, lower margins etc) in a sensitivity analysis, paying particular attention to cashflow. Consider whether the budget complies with covenants set by the bank, and the amount of head room you have.

As I said in the last post, the priorities in an acquisition differ, dependent upon its nature – there are many other risks which should be considered in making an acquisition decision.

 

 

Date: 27th March, 2009
Author: Julian Dobbin

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