RSM Australia

How to minimise the risk of aquisitions

Merger and acquisition activity is soaring in some sectors such as healthcare, while it is taking a backseat in other sectors such as mining services. In this climate, businesses must take a step back and evaluate the benefits and risks of making acquisitions in their sector.

Merger and acquisition activity is a challenge for any business acquisition strategyIf the decision is to acquire, there are six things that you need to take into account to minimise the risks:

  1. Identify the right acquisition target. Make sure it brings real business benefits and enhances shareholder value. 
  2. Conduct extensive due diligence. This includes commercial, financial and legal evaluation.
  3. Don’t overpay. Take into account the inherent value of the business, synergistic benefits and the capacity to fund the acquisition when making an offer.
  4. Realise that no acquisition will ever be seamless. Integration with your business will almost always cause some issues. It is important to have an integration plan in place to manage the change and mitigate the risk.
  5. Have the appropriate capital structure in place. This includes debt and/or equity to finance the acquisition and fund future growth.
  6. Identify key people in the target business. Ensure they stay for an appropriate transition period and consider their role in the new entity.

 

Buying any business has its challenges but it is critical that the acquisition is part of an overarching strategy and not just an isolated play to make a quick gain, or leverage a boom or bust in the industry.

For more information about this article, please contact your nearest RSM Office

Authors

Glyn Yates
National Head of Corporate Finance - Melbourne