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Acquiring a company can be one of the most successful ways of growing a business and tapping into new markets. And if you’re thinking of going down the acquisition route, there are plenty of opportunities.

Richmond Capital Partners chief executive Paul Holohan says the packaging industry is ripe for consolidation: “There is increased activity at the moment because of the number of people looking to retire, as well as issues with succession. People on the buying side are also considering their position, because organic growth is difficult and acquisitions can move the business forward.”

Leicestershire-based Benson Box is one firm that has recognised the benefits acquisitions can deliver. Over the past three years it has bought Robor Packaging, pharmaceutical packaging company Medica Packaging and Print Design and Graphics, increasing staff numbers to 550 and its turnover to £55m.

Managing director Mark Kerridge says the firm owes its success to having a clear strategy from the outset. He says: “It is very easy to get into the transaction process and to forget you are acquiring a new business – you need to plan for the post-acquisition stage.”

Good communication has been the key to getting employees on side and making customers feel confident about the sale. Kerridge says: “Having a communications plan and talking to employees about future ambitions is important. Talking to customers, working with suppliers and giving a positive message that we are here for the long-term and to prosper is essential.”

At the beginning of the acquisition process, the first thing to do is identify your target, and there are plenty of advisers out there to guide you, at a price, through the process.

Nicholas Mockett, packaging specialist at Europa Partners, says: “Large companies will usually have an adviser who has experience of relationships in the industry and can help unlock deals. They may assist with formulating a mergers and acquisitions strategy to suit the business goals, identifying targets and executing the transaction through to completion.”

Intelligence gathering
In an industry that can be highly incestuous, using contacts and the knowledge of your suppliers can be valuable. Phillip McCreanor of Livingstone Partners feels that research is also vital. “I recommend people do their homework, attend conferences and read trade magazines as a source of advice.”

Benson Box’s Kerridge used advisers for the company’s acquisitions. He says: “We have used specialist advice and corporate financial advisers, especially with due diligence and the legal side of the purchases.”
Kerridge also warns that good advice doesn’t come cheap, but it is a necessary expenditure. “Unless you have money in the bank burning a hole in your pocket, and you can buy a company at risk, then you need someone to guide you through it.”

Culture plays an important role in the purchase of a company. Determining the owners’ aspirations and demonstrating why you would be a good buyer is essential for a happy conclusion. An owner could be edgy if the company is a family business, and feelings can run high when it comes to the direction the company will take once contracts have been signed.

A clash of cultures could occur if the necessary groundwork hasn’t been done at the beginning. Holohan says: “If an acquisition fails to live up to expectations it is most often the result of conflicting cultures between the two organisations. Diverse cultures are hard to reconcile.”

The buying process also has to be confidential, not only to prevent the vendor’s customers from getting scared, but also to ensure that valuable employees don’t jump ship at the first hint of a possible sale.

Europa’s Mockett says: “The best way to sell a company is by way of a confidential process. This helps minimise the risk of leaks and, in the case of a public company, a rumour-driven spike in the share price, which could scupper the deal.”

Raising the cash to acquire depends on the status of the company doing the buying. McCreanor says: “With a public company you can go to the shareholders. With private companies, they can use private equity depending on the balance sheet.”

An investment bank will be well placed to advise on fund raising, says Mockett. “Some integrated houses will often sell you their own funding products, whereas a pure adviser will guide you through the selection of a group of debt and equity providers – typically private equity and acquisition finance houses known to be keen on your shape and size of deal – and help you negotiate the most favourable terms.”

Once a price and terms have been agreed, the due diligence (DD) process will begin. This is an essential part of the process and the chance to review all commercial aspects of the business. This includes contracts, staff, and key customers, and enables the buyer to check that everything adds up to what is expected.

Due dilligence
The due dilligence process mainly covers the businesses’ past and forecast financial performance; including accounts, valuation of property and other assets, legal and tax compliance, any outstanding legal action, major customer contracts and intellectual property protection.

Mockett says some of the bigger accounting firms have introduced vendor due diligence. “This is the mergers and acquisitions equivalent of the Home Information Pack and saves the vendor of a business lifting its skirt to a series of different accountants.”

After the excitement of a successful purchase, the hard work begins and the company has to fit in with existing operations. This is a stage that can often be overlooked in the euphoria of the acquisition, according to Richmond’s Holohan.

With estimates suggesting that more than 50 per cent of acquisitions fail to live up to buyers’ expectations, he says it is vital for acquirers in the packaging sector to make sure they plan ahead.
“Anyone entering into a merger or acquisition must be aware that the purchase of the company is only the start of the process,” says Holohan.

Successful integration is also key to success. Mockett says: “If the parent integrates, rather than creating a collection of independent businesses, it is more likely to create value and retain the acquisition. If it doesn’t go well, the business may be put up for sale or closed down.

“On the whole packaging companies seem to do a good job. Some observers criticised British Polythene Industries for buying and selling Parkside, but you have to remember this is a dynamic environment and there is no before and after shot.”

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TOP TIPS FOR BUYERS
Paul Holohan, chief executive of Richmond Capital Partners, offers some essential pointers for acquiring a business

• Get professional advice on the valuation of the target business, and also your own, as this may be necessary to support fundraising
• Ensure there is both a willing buyer and a willing seller at an agreed price at an early stage
• Consider the cultures of the two businesses to make sure they are compatible
• Don’t be consumed by deal fever. Always be prepared to walk away if the deal does not meet your criteria
• Ascertain who really runs the business – it may not be the owner
• Be clear on what you are buying – for example, share capital or trade and assets
• Completing the acquisition is the start of the next process. Develop a post-completion action plan, particularly for the first 100 days