10 Things That Buyers Look for When Acquiring a Business

When it comes to acquiring a business, potential buyers have a lot on their plates. They need to carefully assess various factors to ensure they make a sound investment. As an accountant specialising in mergers and acquisitions, I know from experience that financial due diligence is just one piece of the puzzle.?

Here is a comprehensive look at what buyers look for when they are assessing a potential acquisition:

??Financial Health: Naturally, the financial stability of a business is a primary concern for buyers. They will scrutinise financial statements, cash flow, and profit margins. Some of the metrics that they will be keen to review include sales growth, gross margin trends, debtor days, creditor days, leverage and liquidity. There are many others but this gives you a flavour

??Growth Potential: Is there room for growth in the business? Buyers will assess market trends, the competitive landscape, and the potential for expanding the business. If they don’t see where they can grow the business many will walk away.

??Customer Base: A loyal and diversified customer base is attractive to buyers. They want to understand the customer demographics, retention rates, and any customer concentration risks. They will also want to understand credit terms provided, payment performance and the margins earned.

??Operational Efficiency: Operational efficiency is a key factor. Is the business is running smoothly? Can it be easily integrated into a buyer’s existing operations? Is the business running outdated software which is no longer supported? Are all key business processes fully documented?

??Legal & Regulatory Compliance: Buyers need assurance that the business is compliant with all relevant laws and regulations. This is not just limited to compliance with GDPR and having the required level of business insurance, it extends to sector specific permits, accreditations and memberships too.

??Brand and Reputation: The reputation and brand image of a business matter. Buyers will want to know if the business has a positive image in the market. They will look at online reviews, talk to others in our sector and they are likely to conduct a mystery shopper campaign too.

??Employee Talent: The skill and experience of the workforce are crucial. Buyers will assess the quality and depth of the team. They will also want to assess how well the team are performing, how efficient they are at generating revenues for the business. One metric for this is revenue per head. Sellers should look at their revenues per head and compare it to others in their sector.

??Intellectual Property and Assets: Intellectual property, patents, trademarks, and tangible assets like machinery or real estate are assessed. If such assets are of a sizeable value consider having an independent valuation undertaken

??Due Diligence: Savvy buyers will always conduct thorough due diligence, this involves a deep dive into all aspects of the business. Sellers can save themselves time and money by creating a data room ahead of time and populating it with all of the key documents that a buyer will want to see.

??Integration Plan & Handover: Buyers also consider how well the business can be integrated into their existing operations. They'll want to know if there's a clear plan for a seamless transition. As part of the transition, a smooth handover is very important so sellers should be prepared to give some of their time post-sale to help the new owner.

Conclusion

As can be seen above, when it comes to acquiring a business there is a lot more to it than just the financials.

Buyers look at a myriad of factors to make an informed decision. The key to the whole sale process is to prepare as much of the above for the buyer ahead of time. Demonstrate to them that the business is performing well and has the potential to grow. If there are areas that are lacking, put together a plan of action to resolve it and then share it with any potential buyer.