Acquiring an advisory business: From negotiation to integration
Negotiation to integration
You’ve completed your Due Diligence, and based on the findings it’s now decision time:
Do you proceed without further negotiation based on the original price?
Do you proceed but only after seeking a reduction in the price to reflect aspects of the DD findings?
Do you walk away?
There are some instances where the DD throws up little or nothing of consequence and you can instruct your solicitors to draft the Sale and Purchase Agreement (SPA) without delay.
More often there are “snagging items”; ones which do not lead you to want to walk away but which you want to see dealt with. This is the time to deal with them and either make it a condition of the sale that certain work or tasks are carried out prior to completion of the deal, or to agree as part of the SPA that specific actions will be completed within agreed time scales after the deal has been completed.
Business is business: the negotiation
You may alternatively feel that you need to reduce the price; again, now is the time to do so, however uncomfortable the conversation may be in your mind. Often, the other party is expecting it and is willing to negotiate rationally, if you can provide hard evidence to support your case.
Walking away is a major step and has hard cost implications; if however the DD leaves you and your fellow directors/partners uneasy and your professional advisers cannot give you comfort or a workable solution, then you should walk away.
Don’t get into the situation where you have developed such strong chemistry with the management team of the firm that you are acquiring, that you feel unable to negotiate an adjustment in the price or terms for fear that they will “walk”. As the saying goes: “business is business”, and it isn’t personal. If you are concerned about this aspect then attend meetings in tandem with one of your professional advisers who can provide support.
All in the detail: the Sale and Purchase Agreement
Once the negotiations are completed the SPA should be drafted to reflect the terms. The Agreement should be as detailed as it needs to be, so take advice from your lawyers who should have experience. This is the document that defines the deal and it needs to cover the various eventualities that may arise; the profits are not as great as predicted which impacts the level of deferred payments; advisers or other senior management leave, which again should affect the level of total consideration paid.
Last but not least, the Agreement should be clear and unambiguous as to the future status, role and responsibilities of the principals of the business you are buying, If they have agreed to stay on to do a handover or to retire, that needs to be fully documented and they need to commit to carrying out their obligations with clearly defined penalties if they fail to do so.
Have your roadmap ready: the integration
Integration is sometimes largely ignored or at least underestimated as to its impact and the time commitment and costs involved, by both parties. As a consequence, the value from a deal can be squandered or in some measure diminished.
As the acquirer, you should be thinking about integration and what will be required before the SPA is signed, and agree with the principals of the firm you are acquiring what will be involved, who will be involved and their commitment. Some firms put the integration processes that have been agreed into the SPA in order to avoid any later misunderstandings or disagreements.
If you do not have specialist project management skills in-house, it may pay dividends, at least on the first acquisition that you make, to obtain selective external assistance - though you should define your requirements to ensure you get value for money.
Technology comes into its own at this point, particularly in relation to data migration and consideration of the best way to amalgamate client and other records. It could present an opportunity to ‘clean up’ databases and put the resulting business on a stronger footing for capturing future income. It is vital to understand what technology and tools are in place which would support merging the processes of both businesses and capturing available synergies.
No loose ends: the review
You should (after whatever period has been agreed to carry out the integration) consider seeking an external expert view to ensure that the process is complete. This applies to compliance in particular.
In addition, having agreed the benefits and risks associated with the acquisition at the outset, a formal review should take place to confirm if the benefits have been realised, and if the risks have been managed and mitigated as appropriate.
A final thought; the skill-sets to achieve a successful integration are not the same as those required to negotiate a good deal. There may therefore be others more suited to carry out the oversight of the integration phase than you - your role as a reference point could be more valuable.
When merging business processes, remember that the right technology can minimise the time and effort involved – and could also help boost the overall efficiency of out-dated systems.