Martin  Leuw
Martin Leuw Non-Executive Chairman
6 May 2022

Any idiot with a chequebook can buy a business” said Sir Philip Green, the retailer, at the event I attended, just as I was embarking on my first acquisition. Typically blunt but prescient words from the man who back then was riding high as “king of the high street”. It’s a phrase that will forever ring in my ears when I consider deals.


I’ve worked with private equity houses that pitch their “buy and build” expertise like it’s some sort of Lego set, yet according to the Harvard Business Review between 70 per cent and 90 per cent of mergers and acquisitions fail. It’s not an easy game.


My personal experience of numerous acquisitions has been that you can beat the odds but only with a structured approach and ideally with your ego and emotions left at the door. At one of the companies I chair, Ground Control, we’ve made a few acquisitions and now have a checklist of dos and don’ts.


Once we have a target in mind, our first step is detailed market mapping so we fully understand which companies operate in the space, their market share and their relative competitive strengths and weaknesses. We also look at what products, services, intellectual property and distribution channels they have and what areas of the country they focus on. The idea is to identify the things that are hard and time-consuming to build ourselves.

Many business schools offer a team of students as part of their MBA course to undertake this sort of analysis and it’s very cost-effective. It’s fine to be opportunistic, but quickly spotting those businesses cosmetically groomed for sale can save time and money. As Warren Buffett is credited with saying: “Any player unaware of the fool in the market probably is the fool in the market.”

The best deals I’ve done were where trusted relationships had been built over time and there was recognition by both the seller and their team that we were a good “home”.

Now that’s not always possible, but I’ve found the key to every successful negotiation has been to get into the mindset of the seller and consider the deal from their perspective. You can then position the offer in the most attractive way.

To achieve this, we’ve often found that a payment in instalments with an adjustment based upon business performance has helped with the transition as well as the risk/reward sharing between both the buyer and the seller to get to an acceptable valuation.

It is also best for both parties to sign an agreement setting out the terms of the deal before involving any lawyers. While it does not bind your hands legally it makes both sides commit to the commercial rationale of the deal.

Then comes the due diligence. The financial and legal checks are important but it has always been the commercial checks that I’ve given most attention to. Why do customers buy? Why do they leave? What are the alternatives? How price-elastic is demand? How might competitors react? What else might customers buy from you if you offered it?

Another critical check is whether the acquisition has the right cultural fit. Where this is not aligned it is phenomenally difficult to make acquisitions work.

Finally, if the diligence data doesn’t stack up don’t do the deal. And if your gut says don’t do the deal, however far down the line you are, listen to your gut.

One area where we have slipped up in the past has been assessing our own management capacity to make a deal work. This limitation may not be immediately visible and it’s not until something goes wrong that the cracks become apparent. Unfortunately the damage has already been done.

We now only acquire businesses where we have the skills to make the deal work. And we only look at businesses with similar operating models that have the potential to scale.

Once the deal is signed, the big test is integrating the new business. It is often where the most money can be lost. I made the classic mistake after my first acquisition of leaving the seller in role and then wondered why nothing changed as planned. I now take a different approach to retain the skills of the seller wherever possible but also make sure we have our own person in charge.

Ideally the integration plan is prepared in advance of the deal being signed with input from both your existing team and your new one. The first 90 days are really important, and we go into great detail about what we need to achieve and by when. One priority is to communicate clearly with our employees and customers about what is happening and to anticipate their concerns. Employees are usually worried about job security and the customers about changes to the quality of the service they receive. So it pays to stabilise things as fast as possible and be open. While cost savings often exist from acquisitions, my preference is to prioritise revenue growth first, back-end systems next and savings downstream.

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