Acquisition Strategies: Capitalising On Increased Investor Appetite

What The Research Shows

The new industry-wide research report, titled the Ambition Index, has highlighted that 37% of UK businesses have investment plans in place, compared to 26% before the pandemic – a strong sign that business confidence is picking up.

Private equity deals in the UK, both in terms of deal volume and value, hit a record high in 2021, with deal multiples of 8x, 9x and above becoming increasingly common. Combined with the positive impact of post-pandemic business recovery, and business efficiencies and opportunities that have been driven as a result of the pandemic, investor appetite in fast-growing, ambitious businesses remains strong. 

In particular, those in the TMT sector (technology, media and telecoms) continue to attract significant investor interest. The rapid pace of change in technological innovations, low startup costs and scalability are accelerating rates of company growth and leading to rapid returns on investment.

Increased customer demand for environmentally responsible business practices also means that companies with a strong ESG (environmental, social and governance) focus, such as those in the renewable energy industry, are also being considered strong investment opportunities. Investors and lenders are increasingly aware of their ESG responsibilities and expectations of their stakeholders in this respect.

Businesses, often backed by private equity investors, may embark on an acquisition strategy to achieve their growth ambitions. This approach can provide firms with a rapid method of taking market share, whilst reducing barriers to entry into their chosen target market.

Having a well-considered acquisition strategy can also help businesses make savings due to economies of scale, and provide access to new talent, innovation and data. 

The Right Target Businesses

Put simply, an acquisition strategy involves identifying the right target businesses, before setting out the steps needed to get there, the required funding and timescales. Once a target business has been identified, it’s vital to make sure the right people are on board including corporate finance advisers, lawyers, accountants and funders. Getting to know the current management team and culture to assess whether they are the right fit for the business is key.

Thorough preparation in the form of the right due diligence is an essential element of an acquisition strategy. This typically covers financial, commercial and legal elements, including the business’ customer base, employment and supplier contracts. Cyber security is also becoming an increasingly important area requiring specialist due diligence.

It’s important to bear in mind that under the law, non-executive directors (NEDs) have the same duties as directors with regard to acting in the best interests of the organisation. Non-executive directors may have a number of such roles and will be expected to have an overview of the strategy, board composition, remuneration, relations with shareholders and processes ensuring good corporate governance. A new legal requirement means many businesses will need to report to the Task Force on Climate-Related Financial Disclosures relating to climate-related financial information that should be disclosed. Directors and non-executive directors will need to account for this in their reporting processes.

Conclusion

Investor confidence remains strong, with many fast-growing businesses entering the marketplace along with those who have accelerated change as a result of the pandemic, emerging stronger with streamlined processes and supply chains. By developing a well-considered acquisition strategy, focused on targeting the right business and backing successful management teams, businesses can look to capitalise on opportunities and funding available to accelerate their growth journey.

About the author: Jody Webb, corporate partner at law firm, Shakespeare Martineau.