We regularly advise our Private Equity and search clients on their “100-day plan” post-acquisition. This is an actionable guide to navigate the initial 100 days and set up for future growth. Here we outline some quick wins that searchers can make to start this journey.

Once a deal is complete, a searcher steps in as the new CEO with responsibility for the running of the company and the goal of achieving significant growth before an ultimate exit (in order to unlock the final 8% equity). The new CEO will draw upon their experience in previous roles and on their MBA studies to achieve this.

At Buzzacott, whilst performing due diligence, we also consider improvements that a searcher could look to make to a newly acquired business to help kick start this growth journey. This list is by no means exhaustive or relevant for all companies, however, does represent the quick wins that we find ourselves recommending time and time again when assessing UK SMEs.

1. Improvement of financial reporting environment

While not always the case, we have found that companies below the medium company audit threshold (and often some above it) have a limited financial reporting function. Management accounts may not be produced on a monthly basis (e.g. quarterly or even not produced at all) and when they are produced it may be the case that they are not compliant with FRS 102 (e.g accruals, prepayments, depreciation, deferred income, accrued income not adjusted for on a month-to-month basis). We therefore recommend that the first thing searchers look to do is to improve the financial reporting environment, ensuing that FRS 102 standard management accounts are produced on a monthly basis. This will likely be required to monitor compliance with bank covenants when part of the transaction has been funded through debt.

However, improving the financial reporting is not just a compliance issue. It can also represent a substantial opportunity for growth. We have found that, even on larger deals, businesses often have very limited tracking of KPIs for business decisions. Most important of these is often gross profit margin per customer and per product/service. Properly monitoring this information going forward will allow a searcher to make more informed business decisions, prioritising those customers/products which deliver the best margin and potentially identifying weak service lines that can either be dropped or improved.

2. Marketing/sales strategy

Another easy win comes on the marketing and business development front. It is normally the case that longstanding SMEs with founders looking for a retirement exit will have an underdeveloped (or non-existent) marketing and sales function. Often growth here has been driven purely through word of mouth and the company network. Where this has been the case then there may be an opportunity to use a more sophisticated marketing and sales strategy to grow to the next level. We have seen companies look to improve SEO, the use of content marketing, social media marketing and even direct mail to unlock new customers and drive growth.

3. Customer/supplier contracts

It is often the case that the customer and supplier contracts in place at SMEs are fairly basic (or could in fact be non-existent). Therefore, a third key recommendation that we find ourselves making is to formalise as many of the relationships as possible into standardised customer and supplier contracts. This action will help to safeguard future business performance by clearly establishing payment terms, lengths of relationship, pricing etc. The goal here is to prevent a scenario of losing a key customer or a key supplier drastically changing terms with no recourse.

Change of control clauses - a quick note here on change of control clauses. If a company does have customer or supplier contracts in place then it is highly likely that they will include a change of control clause which requires notification if the control of the company changes (as it will do in a search fund transaction). While something to be aware of, these are not necessarily a major concern. It is incredibly rare to see a customer exercising this clause in the event of a search deal given the whole nature of these deals is to continue the legacy of the previous owner. It is more likely that such a clause could be exercised when a rival company has made the acquisition which the customer or supplier doesn’t want to deal with. Care should still be taken during the notification process to ensure the correct messaging is delivered (i.e. that the searcher is continuing the legacy and is excited to continue to build upon the strong relationship in place).

4. Debtor chasing

A further issue we frequently see with UK SMEs is a limited debtor chasing capability. This normally becomes abundantly clear at due diligence stage when debtor days are investigated (and usually found to exceed payment terms). Therefore, another quick win that can be implemented in the first 100 days is to formalise the debtor chasing process with automatic reminder emails being sent and clear steps of escalation.

Doing this should help to reduce both debtor and lock up days (essentially the time it takes to go from performing work to receiving cash), improving the cash flow of the business and giving it better financial security. This is particularly important after a search transaction given that the seller will have likely extracted most of the cash balance as part of the deal, meaning there is less of a cash buffer to fall back on if receipts are delayed.

5. Modelling

It is consistently the case that owner/manager run SMEs are unlikely to have fully integrated, three statement financial models in place. This is particularly the case when you buy an off-market company which has not come through a broker or Corporate Finance Advisor. Indeed, we will most often just see a hard coded annual budget. As part of the transaction, the responsibility therefore falls on the searcher to put together a detailed, multi-year financial model which will satisfy investors/lenders.

Post deal there is no reason why you cannot add detail to this model and use it for operations purposes going forward. The model should be kept up to date with the latest actual information and the key assumptions continually reviewed as you learn more and more about the business. This will see it serve as a valuable tool allowing you to plan CAPEX, hiring, expansion and make other key strategic decisions going forward.

6. Control environment

A final easy win that a searcher can make early on is to improve the control environment at the company. While not unexpected, we often find that SMEs have relatively weak control environments in place. Improving this will make the business more appealing to larger acquirers/Private Equity buyers as it will improve accuracy of results and help to prevent the risk of errors/fraud.

Typical improvements that can be made in most cases include: introducing two step payments, performing regular bank reconciliations, carrying out more frequent and detailed stock takes, regular impairment reviews of fixed assets and improvement of the payroll process.

Conclusion

While not exhaustive by any means, the above 6 points represent some common easy wins that can be implemented quickly after a Search transaction to help kickstart the company’s growth journey. Executing these improvements is a straightforward way for a searcher to immediately add value and set the tone for the professionalisation of the company going forward helping to both drive growth and make the business itself more appealing as an acquisition target to trade or PE down the line.

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How can Buzzacott assist on a Search Fund acquisition?

The Corporate Finance Team at Buzzacott have great experience providing financial due diligence and transaction advisory services to searchers looking to make acquisitions. We view the due diligence process as establishing whether the target is a company you want to acquire and the transaction advisory service as using learnings from the diligence process to negotiate the best possible deal. This is typically achieved through making adjustments at the enterprise to equity value bridge stage, establishing a cash requirement or identifying additional debt items. 

The Buzzacott tax team also have experience in both performing tax due diligence to identify potential issues in the company and structuring the deal/acquisition vehicle so that it works most efficiently from a tax perspective. This is often invaluable in cases where a Search Fund has multiple different investors, often based in a variety of countries.