A step-by-step guide to the acquisition process

A strategic move for growth and innovation

The prospect of acquiring another business is exciting (and daunting), especially for those embarking on the journey for the first time. Whether you are part of a large business with a seasoned M&A department, or an ambitious SME owner hungry for growth, acquirers often find themselves learning on the fly and balancing aspirations with prudence.

Why? Because the rewards – accelerated growth potential, new capabilities, diversification – are difficult to ignore.

In this guide, we break down the acquisition process into clear, actionable steps. From contemplating your first deal to sharpening your approach, this step-by-step roadmap aims to equip you with practical insights and critical considerations at every stage.

Keep in mind however, that no two transactions are the same.

Preliminary steps

With this being Part 4 of the Acquisition Series, we have already covered some of the key steps when planning for inorganic growth. Therefore, we have briefly summarised the initial ‘planning’ before a deal is considered. For more information, refer back to Parts 1 to 3 from the series.

Clarify your acquisition strategy and objectives

Every successful acquisition begins with a compelling rationale. Ask yourself: why do you want to acquire? Common motives discussed in Part 1 of the Series include expanding into new markets, acquiring innovative technology, achieving scale, diversifying revenue streams, or eliminating a competitor. Before launching into the market, define what success looks like – not just financially, but also operationally and culturally.

One simple step of documenting the rationale can help keep a team aligned, working towards a common objective.

Define your strategic priorities: Growth, market share, talent, technology?
Establish clear investment criteria: Industry, size, geography, risk profile.
Set expectations: What does an ideal target look like, and what constraints exist? I.e. financials, timing, operations.

Formalising these objectives keeps the process focused and helps avoid costly distractions.

Assemble your acquisition team

No acquisition is a solo effort. Early on, assemble a team that blends in-house expertise with trusted external advisors – the combination will depend on the scale of the acquirer and the magnitude of the task at hand. For an owner-managed SME, this might mean the shareholders hiring external M&A advisors who can run the process from start to finish with limited assistance. Alternatively, a serial acquirer with a dedicated M&A team may require expert help at specific stages of a deal (i.e., valuation, financial modelling, or due diligence). M&A advisors can act as accountant, valuer, negotiator, and project manager connecting all the parties involved – supplemented as required by M&A-savvy legal, industry, and due diligence specialists.

Internal champions: Decision-makers who thoroughly understand the current business and culture, and the acquisition characteristics to help move it forwards.
External advisors: M&A advisors, legal advisers, accountants, and industry experts/ consultants; especially for navigating unfamiliar terrain and avoiding pitfalls.

Selecting advisors who understand not only the marketplace, but the SME landscape ensures guidance is pragmatic and cost-effective.

Now, into the deal process.

Step 1: Identify potential targets

With your strategy and team in place, the ‘treasure hunt’ begins. Part 5 of the Series will explore how we identify acquisition targets, but for now, know that the search requires a blend of research, networking, and creativity, as public databases, particularly in the SME landscape, often don’t cover the breadth of options available.

Furthermore, whilst low-fee options such as brokers may be appealing, their approach – spreading a wide net to source on-market opportunities – may not identify the best targets. M&A advisors add value by identifying off-market companies which precisely match given criteria.

In the private company marketplace, we’re looking for ‘a needle in a haystack’ pursuing a company that meets acquisition objectives, whilst not demanding an excessive valuation.

The easiest way to form a successful group is to acquire successful companies at a fair price; however, such companies are typically those with overstated valuation expectations, or their own hopes of pursuing an acquisition journey. Comparatively lower-priced companies have perhaps reached a point of stagnation and therefore require specialised knowledge and directed effort to turnaround performance. The point we’re making here is that companies rarely meet all desires from an acquisition thesis – it is therefore important to establish a small list of non-negotiables. An acquisition search then becomes a trade-off of various priorities.

The more specific the search, the longer the ‘treasure hunt’ will take.

The steps we use to screen targets are:

Leveraging networks: Industry contacts, trade associations, and professional advisors often know of companies which are open to exit discussions.
Direct outreach: Approach promising targets directly – often the best opportunities aren’t actively marketed.
Screen for fit: Assess preliminary financials, culture, customers, and strategic alignment to your objectives.

A long list quickly narrows as you filter out those companies that don’t meet your acquisition criteria.

Step 2: Preliminary valuation assessment

Before entering serious discussions, gauge the value expectations of your shortlisted targets. For example, if you’re looking to allocate £10m to an acquisition, but a target achieved £100m revenue last year, perhaps this company isn’t suitable to progress with. Equally, for SME M&A, if the shareholders are still decades away from retirement age and the business is growing quickly, perhaps a premium valuation will be expected. While formal valuations come later, early back-of-the-envelope calculations help frame the introductory conversations.

If you have questions here, we have experts who would be happy to discuss the principles of valuation. However, for an introduction, see our ‘how much are companies worth’ blog.

Analyse financials: Our first questions for a target will be around revenue, profit margins, cash flow, and balance sheet strength. Some of this info may be available on Companies House, or one of the many databases we subscribe to.

We can then answer questions such as, how sustainable are the profits? Is the performance volatile year-on-year? Is revenue recurring or one-off? Does the business suffer from customer concentration? Do suppliers have negotiating power?

Evaluate areas of comparative advantage: Once you understand the company and have a base valuation in mind, you can begin thinking about integration and consider how a business combination could save costs, cross-sell, or innovate.

M&A advisors should be able to walk through a valuation and (depending on the sector) evidence previous transactions of similar businesses to guide an initial offer.

Step 3: Make the approach and begin confidential discussions

Once you have a strong candidate, initiate contact. Typically, you’ll sign a non-disclosure agreement (NDA) to enable open sharing of sensitive information, and the conversation progresses from there. For a solo approach without advisors, or if you already know someone from the company, this step may precede the initial assessment from Step 2.

If you don’t have a route in or know someone from the target company, the paragraph above is an oversimplification… The outreach stage is incredibly delicate. You can speak to numerous people from a company before reaching a decision maker, often after investing significant time navigating inaccurate contact details or inactive LinkedIn profiles – which is why we recommend using advisors who typically have the credibility and experience to get through to the right person, pitch the vision, and arrange an introductory meeting.

Why does an advisor make a difference?

Professionalism. A telephone conversation that begins with a brief yet personalised introduction, followed by a focused discussion about the business and thoughtful questions regarding the audience’s growth/ exit plans, is considerably more engaging than a direct inquiry from a competitor simply asking, ‘Would you like to sell?’.

Professionalism leads to credibility, which in turn leads to follow-on conversations, which can result in a signed NDA, to a site visit, to offer discussions… And so on.

Confidentiality builds trust and protects both parties. A professional approach using advisors, a project name, and a formal two-way NDA helps to lower barriers and motivate productive conversations.

Prepare a tailored, respectful approach: Remember, many SME owners see their business as their life’s . Be prepared to be candid and share information about your own business and your own ambitions, as this helps break down barriers and gives more transparency, leading to trust much sooner.
Differentiate carefully: Vendors may be wary after numerous approaches previously from brokers and investors. However, a well-crafted approach from a reputable CF firm can establish credibility and empathy with shareholders.

Set expectations for the process: Outline timelines, information-sharing, and decision-making thresholds up front.

Step 4: Make an offer

Once you have contact with a decision maker and a signed NDA you can suggest an initial meeting to request some more detailed information. Not every target will provide open access – especially a close competitor – however, with the latest accounts stretching back as far as they will allow (we’d usually request three years’ worth), an understanding of the customer base, suppliers, and expected future performance, you can form a high level view on valuation.

At this stage, an M&A advisor makes their fee worthwhile, because of four factors:

Deal quantum – How much should we offer? How confident are we in the valuation?
Deal structure – How should the consideration be structured? How much can we afford on day one? Are there any risks or contingencies built into the valuation?
Negotiations – We have a valuation, but what should the first offer be? How much is our best and final offer? What if new information comes to light?
Avoid overpaying – Be wary of a ‘bargain’ and stick to your valuation discipline.

Making an offer which is high enough to be acceptable without overpaying is tricky and requires a culmination of skills and experience. At this stage, we’re looking to agree the Heads of Terms (“HOTs”), which is a non-binding document outlining the key terms of a deal. Due diligence follows this stage so there will be chance for adjustment, but to see a smooth deal it’s best to put forward an appropriate offer. This offer should be an amount which you would willingly pay should no surprises arise – whist that may seem obvious, we do see high offers, whereby an acquirer has an intention to ‘chip’ at the deal quantum following due diligence. Such practices are not conducive to a smooth handover of a business.

To quickly run through our approach without getting lost in the detail, a valuation should form a range for the deal quantum, from which a level of intuition can help us to arrive at a single figure offer. The deal structure largely depends on the contingencies and risks present in the valuation; for example, an offer which is contingent on growing customer numbers and revenue, strong profitability, or a number of synergies being actionable should consider an earnout, whereby consideration is deferred and depends on the performance of the company in the future – this is a form of Vendor Financing as we discussed in Part 2 of the Series. Alternatively, if the deal is highly contested and you’re looking to surpass the competition without raising the price offered, maybe you could structure the deal with more of the consideration paid upfront. When it comes to negotiations, it is important to understand the trade-offs between deal quantum and structure, such that each party feels they have gained something – which is ultimately how deals are agreed.

If you are considering an acquisition and would like to better understand the detail regarding valuation and negotiations, which we would 100% recommend, contact us.

Step 5: Conduct thorough due diligence

Due diligence (DD) is the backbone of a sound acquisition. DD has the aims of confirming that the business is as represented in the initial appraisal of valuation and uncovering risks.

Unfortunately, when it comes to retirement, exiting an industry, or leaving something behind, sellers are not always entirely honest. Bias gets in the way and a factor which could be a negative for an acquirer could easily be framed as a positive without confirmatory review. Therefore, due diligence, across financial, legal, tax, and commercial categories can ensure that there are no hidden surprises post-completion.

Due diligence can reveal deal-breakers and opportunities to renegotiate the terms.

At Price Bailey, we have a dedicated Transaction Services team with significant experience across financial due diligence.

Step 6: Negotiate terms (again) and agree on price

With diligence complete, negotiations shift into high gear. As we discussed previously, price is often only part of the equation – terms around payment structure, management retention, transition arrangements, and future incentives can be equally important. At this stage, the Sale and Purchase Agreement (“SPA”) is drafted, which is the legally binding contract encompassing the deal. We will look at the HOTs and SPA in more detail in Part 6 of the Series, focussing on the legal considerations.

Structuring the deal: Will the purchase be of the trade & assets of the target or will you acquire the target’s shares from the existing shareholders? What form will the consideration take, cash, shares, vendor financing, will there be an earn-out, or a mix? What are the contingent liabilities?
Balance risk and reward: Both buyer and seller must feel the agreement is fair and achievable.
Document everything: Heads of Terms (following an offer letter/Letter of Intent), and a detailed Sale and Purchase Agreement prepared and reviewed by legal counsel.

Step 7: Secure financing

We have covered financing options previously (Part 2: How to Finance Acquisitions) and will therefore briefly review this step. Even for ‘cash buyers’, most SME acquisitions involve some level of external funding – be it from banks, private investors, or vendor financing. Securing appropriate finance that matches the deal structure and the business’ risk profile is important to maximise returns and set the business combination up for success.

Ensure you understand all the terms and obligations present before closing – this will usually be a combined effort from M&A and legal advisors.

Step 8: Plan for integration - early and often

An ownership change marks an inflection point for a business. When shifting from the deal stage to the integration process, even carefully planned acquisitions can present challenges. The disruption of merging operations, cultures, and systems can be profound.

Fail to prepare, prepare to fail.

For obvious reasons, we recommend planning for the post-completion integration as early as possible (as we will dig into this further in Part 8 of the Series). However, deals can fall through and there is no hard rule regarding the right time to start planning. Once the transaction appears likely that it will complete, preparations should begin as though the deal will follow the agreed timeline – as a safe principle, we usually recommend that integration planning starts in parallel with due diligence.

Any final negotiations can then factor both the findings of the DD investigations and the planned synergies from the transaction.

Develop a clear plan: Define leadership roles, align systems and processes, and communicate openly with staff and customers.
Prioritise quick wins: Secure key personnel, stabilise operations, and ensure business continuity. Furthermore, momentum motivates the team and positions the business for ongoing success.
Set measurable goals: Establish KPIs to track progress and reward success. Develop a 100 Day Plan so you are ready to hit the ground running immediately post-completion.

Finally, should unforeseen issues emerge during due diligence or if the acquisition strategy needs to change direction, it is important not to be influenced by anchoring bias. Achieving success demands a flexible mindset that can adapt appropriately to evolving circumstances.

Step 9: Complete the transaction and communicate

Once all conditions are satisfied and agreements signed, the transaction is completed to the satisfaction of both parties. But in many ways, from the acquirer’s perspective, this is where the real work begins: delivering on the promise of the acquisition.

Announce the deal: Communicate clearly and positively to staff, customers, suppliers, and other stakeholders. A well-worded press release might be featured in trade and other media and can be a good advertisement for the business.
Implement integration plans: Move quickly on agreed priorities to maintain momentum and engagement.
Monitor and measure: Regularly assess progress against KPIs and be willing to adapt as circumstances evolve.

Keep in mind, whilst a business plan or 100 Day Plan has (hopefully) been prepared and is ready to be actioned, for many of the stakeholders – employees, long-standing customers, local suppliers – this is a period of uncertainty. Establish relationships, and so long as it is the plan, state that the business is targeting growth without sacrificing its roots.

A new chapter begins…

Closing remarks

Acquiring a business is a journey that rewards preparation, discipline, and clear-eyed optimism. Success is less about following a rigid formula and more about adapting best practices to fit the unique circumstances. By breaking the process into manageable steps – from clarifying your strategy, assembling the right team, diligently screening and valuing targets, to closing and integrating – you can demystify the acquisition journey and lay the groundwork for transformative growth.

Previously in the acquisitions series

Part 1: Why pursue acquisitions?

Part 2: How to finance acquisitions

Part 3: Master strategy – planning for a successful acquisition

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

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