Mar 6, 2024

UK Business Buyer's Guide Part 1: Define Your Acquisition Criteria

Welcome to Part 1 of our complete guide to buying a business in the UK. This series will take you all the way from sourcing, to closing, and all in-between! We begin with a fundamental step in this process - defining your acquisition criteria. Laying a solid foundation is key to the rest of this journey running smoothly.

Starting your journey into business acquisition with a clear set of criteria is essential for navigating the complex landscape of SME acquisition. This foundational step involves identifying your ideal target based on several key factors: industry type, company size, geographical location, financial health, and potential for growth. 



Industry Insight


When choosing an industry, understanding not only the day-to-day running of a business, but the industry trends and future prospects, is critical to the long term success of your acquisition.

If you are reading this, the likelihood is that you already have a desired industry in mind. Perhaps one linked to your previous experience or, if you’re a company owner already, an adjacent industry that will complement your current business. This is a solid baseline from which to start, however I would caution against hubris! Even if you know your chosen industry inside and out, please don’t skip the research phase. Sometimes we can’t always see the wood for the trees, as the old adage goes. The big picture is vital when planning out the growth prospects of a business.

For those sector-agnostics among you, this step can come a little later in the process. Once you’ve outlined the size, location and financials that work for you, it’s perfectly acceptable to search within those parameters to find your desired industries. You may find that patterns emerge based on those parameters and the right industry reveals itself to you. 

Once you’ve made your choice(s), some great places to begin your research are industry-specific trade associations, market research platforms and networking groups - both in-person and online.


UK Trade Association Forum: https://www.taforum.org/member-directory/

UK Industry Research Reports: https://www.ibisworld.com/united-kingdom/

Networking: LinkedIn, Meetup, Eventbrite




Company Size

When considering acquiring a business, the size of the company plays a pivotal role in determining the complexity of the acquisition, the integration process, and the potential return on investment (ROI). Defining company size can include company revenue, the number of employees, physical locations, and market share. These metrics offer a clearer picture of the business's operational scale, competitive stance, and financial health.

Understanding a company's size within its sector is also crucial, as it can significantly impact your acquisition strategy. For instance, larger companies may offer immediate market presence but come with complex integration challenges (and cost more to acquire!). On the other hand, smaller entities might provide agility and niche market advantages but may require investment of both time and capital in order to scale.

Before you dive too deep into this portion of the research, it may be helpful to look into how you might finance any possible acquisition. Whether you’ve got cash in the bank to buy a business outright, want to acquire with no money down, or are looking at a mix of cash and debt, it’s helpful to know what your upper limit is early in the process. I have heard horror stories about deals collapsing after many months of work because the buyer couldn’t access the funds they assumed they could. Don’t be that buyer.






Location Logistics


Location logistics play a crucial role beyond just geography. This aspect of your decision can affect regulatory compliance, market reach, and the day-to-day operations of the business. Understanding the local market, regulatory landscape, and logistical challenges of a potential acquisition site is extremely important. Buying a haulage firm in an ULEZ zone might not be the best idea, for example!

Diving deeper, the local market knowledge helps you gauge customer behaviour, competition intensity, and market saturation levels, directly influencing your strategic decisions. Regulatory considerations are equally important, as different regions may come with their own set of laws and regulations that could impact your business operations, tax obligations, and expansion plans.

Also, consider your proximity to the main place of business and how often you’ll need to be there in person. I spoke with a business owner recently who, when living in Scarborough (in the North East), purchased a business in Devon (in the South West). Needless to say, it wasn’t long before the travel time became a burden and he decided to sell up. A 12 hour round-trip will grind you down quickly.



Growth Potential


Evaluating an SME's growth potential is a critical step in the acquisition planning process, because knowing where you want to take a business will impact where you want to begin! This assessment goes far beyond current financial performance. Consider a company's market position, its competitive edge, scalability, and capacity for innovation—all crucial elements that can help, or hinder, future growth.

At this stage, you are defining your acquisition criteria rather than assessing a specific business (a topic we will cover later in the series), so this step is designed to get you thinking about potential growth factors and how you will identify them when your company search begins. If you completed your homework in Step 1 (Industry Insight) you should already have a fairly solid understanding of what to look out for.

The key points to consider when thinking growth potential are:



Market Position and Competitive Advantage

Understanding where the company stands in the market and its competitive advantages is fundamental. This involves looking at the company's market share, customer base, and brand reputation. 


Scalability

Scalability is about the company's ability to grow without being hampered by its current structure or resources. Assessing this involves examining the business model, operational efficiencies, and the potential for expanding product lines or entering new markets. This is particularly difficult to gauge early in the process - you’ll need to get hands-on to discover this stuff usually.


Innovation Capacity

A company's ability to innovate and adapt to technological advancements can be a large indicator of its long-term growth viability.


By setting clear, informed acquisition criteria, you position yourself to focus your search, efficiently evaluate opportunities, and make decisions that align with your strategic goals. This step is not just about filtering options; it's about laying the groundwork for successful acquisition and growth in the long term.

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