One way to rapidly grow your company is to buy another one. But a business acquisition is likely to be one of the most intensive purchases you’ll ever make. Tenzing’s Acquisitions Director Matt Nicholson talks through the value it can add to the private equity journey, how he works with CEOs and what he does in his role.
A fast-growing, private equity-backed company can expect to double or treble their growth across a four or five-year cycle. Add one or more good strategic acquisitions to the mix – which we like to think of as the icing on the cake – and you could be looking at expanding your business four or five times over.
But it can be a lot to take in for a new private equity CEO. They’re likely to be focused on driving organic growth from within the business, and in general, steering the ship towards the horizon.
Acquisitions can often end up an afterthought – or worse, a distraction – for a CEO and management team. As a new private equity CEO, you might not have experienced this before, simply due to the size and growth stage of your business by the time you partner with private equity.
What it takes to find the perfect match
Due diligence, working with lawyers, knowing what needs to happen when, and what all the terminology actually translates to is a whole scope of work in itself. That’s where someone like me can come in very handy. Because, let’s face it, you end up kissing a lot of frogs before you find your perfect match.
So how do we go about finding that perfect match? The Acquisitions Director role at Tenzing is similar to an internal M&A director that a company might hire. But we’re split across a few companies rather than one, leveraging the skills and experience we’ve gained across our portfolio. We work on a maximum of four companies at any time to ensure a proper focus on each one. It often dovetails nicely with some being busy as others are quiet.
The most important thing to set out up front, too, is what our acquisition strategy actually is. An Acquisitions Director helps management define and document the strategy for sign off by the board.
Key questions I recommend asking when developing this strategy are:
- What is the business’s overall strategy and how does acquisition fit into it?
- Do we want to buy rather than build?
- What should we buy and why?
- What gaps are there currently in the product/service offering?
- When would we want to buy it?
- What market are we wanting to buy in?
Getting to the exciting stuff
Once we agree the strategy and action plan, that’s when we start approaching targets in earnest. We’re always talking to potential target businesses. The majority of these either aren’t right, or just aren’t for sale, but are still interesting and have potential. It can be a long-term relationship building exercise, so when it is the right time, you’re the person they think of ahead of anyone else.
Either way, an Acquisitions Director helps filter a long list. So as CEOs and management, you only need to get involved when things get interesting. Once we find a match, and conditions are right on both sides, then the exciting stuff happens. The Acquisitions Director helps negotiate the commercial deal, and finally, executes the transaction.
Laying out the rules of engagement
Of course, a CEO can be involved sooner and more closely – as you need and would like to be. Some like to be hands-on every step of the way. Others are keen to only get involved at the sharp end of the deal.
I’ve worked with a CEO with a sales background, who wanted to always be kept in the loop on how many targets we had and how many I was speaking to, and where they were up to in the pipeline. I’ve had others who are happy with a monthly update where we go over who I’m speaking to. We then have a chat around which ones are more interesting than others, and they become the priority.
There’s no right or wrong approach. I can go with either, as long as we set out at the beginning how we’re going to work together, so we’re on the same page.
Be empowered to pivot
The most successful working relationships between an Acquisitions Director and a CEO are those that are flexible, responsive, creative and imaginative. Because you can have the best strategy ever, but you need to be able to adapt quickly if things don’t go to plan. For example, if there’s only a handful of your initial target businesses out there, then the chance of being able to execute goes down. If you have your eye on five businesses that don’t happen to be for sale, then it’s simple. You can’t buy them. So it’s best not to get stuck just on those five.
That’s also why it’s important to have an Acquisitions Director on board. We can help decide where to move the focus onto, and make sure we’re progressing things all the time.
The sweet spot
While most Tenzing companies have successfully completed acquisitions, it’s worth noting we aren’t in the business of “buy and build”. We don’t invest in companies where acquisition is crucial for seeing growth and a return. Like I said, we see acquisitions as that extra edge, that turn the dial on returns from good to excellent.
That’s the sweet spot where you’re able to buy companies that really make sense to your business strategy. That’s what an acquisition director really excels at, and what I love doing.