Growing Your Family Business Through Acquisition

Business growth through acquisition is an increasingly popular strategy across a wide range of sectors in the UK. It offers companies the opportunity to expand their customer base, enter new markets, achieve vertical integration, or broaden their product and service offerings.

However, acquisition is a significant undertaking that carries inherent risks. If not executed carefully, it can present major challenges. In this article, Roseanna Ramsey, Investment Manager at private equity firm Endless LLP, outlines the key stages of acquiring a business and shares her insights on how to navigate each phase to avoid common pitfalls.

Stage 1: Creating a Strategic Plan

A well-defined strategic plan is essential. It helps align your team around the primary objectives of the business, including both organic and inorganic growth initiatives.

• Organic growth refers to internal efforts such as increasing sales or improving operations.
• Inorganic growth involves expansion through acquisitions.

When pursuing acquisitions, it’s crucial to identify the key drivers of growth. This ensures you focus only on opportunities that align with your strategic goals—whether that’s expanding geographically, accessing new customer segments, or diversifying your product range.

Stage 2: Identifying and Appraising Potential Targets

Once your strategic priorities are clear, the next step is to identify suitable acquisition targets.

Key considerations include:

• Size and scale of the target business
• Geographic location
• Your internal capacity to manage the acquisition and integration

You can identify targets through:

• Desktop research, using AI-driven tools and databases
• Corporate finance advisors or brokers, who can connect you with business owners considering a sale

Stage 3: Valuation

Valuing a business is a nuanced process. The two primary valuation methods are:

• Income-based valuation: Based on current and projected earnings, often using a multiple of EBITDA. The multiple depends on factors such as growth potential, market position, and management strength.
• Asset-based valuation: Based on the net value of the company’s assets, often used for asset-heavy or underperforming businesses.

Other factors influencing valuation include:

• Equity stake: A majority stake typically commands a premium due to control rights.
• Payment structure: Whether payment is upfront, deferred, or performance-based.
• Net debt: Deducted from the enterprise value to determine equity value.
• Sector dynamics: Industry trends and risks that affect future earnings.

Once valuation terms are agreed, a non-binding Heads of Terms or Letter of Intent is usually signed to outline the key deal points.

Stage 4: Due Diligence

Due diligence is critical to understanding what you’re acquiring, identifying risks, and validating the agreed valuation.

Financial, Tax and Legal are the core areas of due diligence that are conducted on the majority of transactions however it is becoming increasingly common for other areas of due diligence to be undertaken before an acquisition, such as technical, environmental, and political DD.

Types of due diligence include:

• Financial: Assesses financial health and risk areas
• Tax: Reviews tax compliance and structuring
• Legal: Confirms ownership of assets, IP, and regulatory compliance
• Commercial: Evaluates market position, customer base, and competition
• Operational: Reviews scalability and efficiency of operations
• Environmental: Identifies environmental risks and obligations
• Technology: Assesses IT systems, data security, and cyber risks
• Management: Evaluates leadership capabilities and team dynamics
• Political: Assess potential political, policy and regulatory risks

Stage 5: Legal Completion

Following due diligence, legal advisors draft the necessary documents to complete the transaction. These typically include:

• Sale and Purchase Agreement (SPA) or Asset Purchase Agreement (APA): Outlines the purchase price, transferred assets, conditions, warranties, indemnities, and completion date
• Ancillary documents: Such as Stock Transfer Forms and Share Certificates

Stage 6: Integration

Legal completion is just the beginning. The real value of an acquisition is unlocked through effective integration.

A robust integration plan should cover:

• Internal and external communications
• Performance tracking
• Realisation of synergies
• IT and HR system integration
• Employee onboarding and cultural alignment

Final Thoughts

Acquiring a business can be a powerful growth strategy—but only if it’s aligned with your long-term objectives and executed with care. Engaging experienced advisors for valuation, due diligence, and legal matters is essential to mitigate risks and maximise value.

With the right strategy, preparation, and support, acquisition can be a transformative step in your business’s growth journey.

—Roseanna Ramsey