The day nurseries sector remains highly fragmented, which should continue to give rise to acquisition opportunities for those businesses that are looking to expand. To ensure you are able to raise the necessary finance to complete an acquisition, it is important to understand the areas that your lender will be looking to assess.
The first thing your lender will want to know is why the proposed acquisition makes sense for your business. For example, the target company may have nurseries located within new geographic regions. Or, the quality of care and fee structure across the target nurseries may complement your existing settings.
It is absolutely vital that any acquired businesses are successfully integrated, and your bank will want to hear how you intend to achieve this. Integration plans by many acquisitive companies include target dates for key milestones to be achieved. Be prepared to talk your lender through the assumptions underpinning your plan.
For larger acquisitions, it is in the interests of both you and your lender for external due diligence to be commissioned on the business to be acquired. The main purpose of this is to confirm your knowledge and understanding of the target company. The most common forms of due diligence are:
- Financial: To provide a view on both the historic and forecast trading performance of the target, as well as highlighting areas for consideration ahead of completion
- Commercial: Typically this involves a review of the projected financial performance of a target business in the context of market conditions and the competitive environment
- Legal: This provides a comprehensive assessment of the possible legal risks associated with the target company
Beware the deal that seems too good to be true, as it often is. Acquisitions rarely go 100 per cent to plan, with cultural disparities between organisations often creating problems along the way.
However, if a concerted effort to bring teams together follows proper due diligence, there is no better driver of growth.
