How to acquire an overseas business
Acquisition is usually the domain of the big boys, but smaller exporters can certainly benefit from taking on another business abroad. Here’s how to make the process as smooth as possible.
It’s a serious undertaking when a business decides to acquire another, particularly if the acquiring business is a small or medium-sized one. While having enough money is usually a major concern for all types of takeovers, acquiring an overseas business will also require significant thought in regard to legal and cultural considerations. This is a guide that outlines how smaller businesses should approach the acquisition process.
Secure your strategy
Be very clear about why you’re considering acquiring the other business. Acquisition has many benefits, notably related to speed in gaining market share, technology and/or skills.
“If you’re in a market and only have a small market share, there’s probably going to be a long path for organic growth. You may want to acquire to increase meaningful market presence,” says Symon Brewis-Weston, executive general manager of Local Business Banking at the Commonwealth Bank. “You may use acquisition to enter a market. So in a market where you don’t exist, instead of starting a business from scratch you may just acquire a business.”
He also nominates possible advantages such as gaining scale or cost efficiencies, or buying the human capital of the other business: “You might acquire because you think they may have a better R&D capacity or a better skill base or technical expertise.” Reducing competition, or diversifying your business are also common reasons for acquisition.
As an expensive, research and time-intensive process, acquisition may compare unfavourably to other methods of reaching your business goal, such as licensing another firm’s intellectual property, attaining a certain skill base through outsourcing or setting up a joint venture.
Clive Rabie is the CEO of the Reckon Group, which comprises of business services and software. “We like to buy best of breed technology as opposed to customer bases,” he says. The process then includes the human resources level—”look at the management and the people involved”—before the numbers: “Look at the earnings, numbers and profit against capital requirements, how capital intense it is, and look at your own financial position: whether you’re growing organically.”
In the end the equation should be fairly simple: “The main drivers are whether it’s strategic to your business. The next thing I would look at is whether it’s synergistic and then how it affects your business,” he adds.
Plan for people
One area that should attract as much attention as the finance aspect is cultural fit. Not only do businesses have different cultures within them, when you’re trying to join two businesses from different countries it’s a more significant factor than usual. Your handling of culture could mean the difference between success and failure.
“When you want to go overseas there’s a whole other layer of cultural focus as opposed to just being in Australia,” notes Rabie. “If you’re going overseas, add another layer of consideration: ‘okay, how do we manage? What sort of relationships do we have on the ground in those places? What are the risks? Who, locally, can look after that relationship?’ On the positive side, from the acquisition what can you bring back home? And that goes back to the synergies.”
Brewis-Weston agrees that not enough attention on culture can lead to problems: “The biggest risk that I see is where you’ve acquired people to do a job and you’ve imposed a way of doing business that might be different. It can lead to a great deal of disenfranchisement.”
Looking internally, he insists that businesses understand the cultural reasons for why your business is already successful, as well as understanding the skill capacity of your staff. On an external front, do some research on the operating context of the business to be acquired.
“Understand the culture of the country and try to get as much of an understanding as you can of labour laws and culturally how those people operate. Typically, most people fear the acquirer unless it’s a survival thing, and most people will assume that costs will be cut,” he notes. “You have to be clear about the messages that you’re going to bring, and try and have people on board who can advise you of the cultural issues and how to manage that.”
Brewis-Weston admits that a number of acquisitions lose value because the acquiring business has either overpaid because they don’t understand the asset they’ve purchased, or they “don’t get the people piece right”.
“If you’re buying a pharmaceuticals company because they have a good R&D team and you change their culture, they could then leave to a competitor and half your team is gone, which may be the reason you bought it in the first place,” he gives as an example.
Other stakeholders are the customers of both businesses. The acquiring business needs to understand that if they change things, they may also be changing the relationship between the acquired business and its customers. If you’re acquiring a business to gain market share, this is a crucial consideration.
“A lot of people don’t think of how their customers might react. You have to think of why people are customers of that particular company. You need to maintain the link between that service and the customers; if you lose that, you’re in real trouble,” Brewis-Weston remarks.
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