When business owners are preparing to sell their company, they often ask us to share insights from different types of buyers and outline the areas that they will focus on when considering an acquisition opportunity.  

Although our contributors operate across separate sectors and have different ownership structures, four common themes emerged from the discussions: 

• Cultural alignment and leadership capability; 

• Strategic fit; 

• Organic growth; 

• Compliance and quality. 

Cultural alignment and leadership capability 

While financial metrics form an important aspect of any transaction, each of the panel members agreed that they focus on companies with shared values, which are led and reinforced by an experienced team. Alignment in relation to client service, colleague engagement and management style, coupled with appropriate retention mechanisms for key staff, are key considerations that can enable a smoother integration process and allow value to be created post-deal. 

Agustin Fernandez, Chief Corporate Development Officer at 7IM, summarised: “We evaluate every acquisition opportunity against a clearly defined strategic framework. Culture, growth and governance sit at the heart of that assessment. We focus on firms that share our client-first ethos, place real emphasis on colleagues, demonstrate sustainable growth, and operate with a strong, well-embedded compliance culture.” 

With buyers increasingly requiring data and qualitative evidence to support their due diligence and internal approval requirements, it is in the interests of business owners to take certain actionable steps to track their organisation’s culture and provide evidence of strength during a transaction process. This may include monitoring employee engagement via regular feedback cycles, reviewing staff turnover trends and/or ongoing development plans for management to reduce owner dependency. 

Strategic Fit  

Being a naturally, clear and compelling fit with the buyer’s strategy was also a core consideration. Although the nature of the strategic rationale may vary, from a complementary product or service offering to geographic expansion, a central theme was defensibility and high barriers to entry, which is often evidenced by repeat customers or recurring revenue models. For example, from a software perspective, mission criticality and understanding the importance of the solution for the success of the customer is essential, particularly with the increasing prominence of AI. Equally, local catchments with attractive demographics and exposure to council-funded hours are a priority in the childcare sector. 

Charlie McCarthy, Chief Operating Officer at Denholm Energy Services, commented: “We appraise acquisition opportunities against a range of criteria, with a particular focus on businesses that add complementary, scalable services across our existing geographies and beyond, and offer a clear strategic fit with our acquiring division. As a family-owned group, cultural alignment is also a key consideration.” 

In our experience, business owners can often achieve better outcomes where they have cultivated relationships or commercial partnerships with a targeted group of buyers over a period of time prior to a formal sale process. By doing so, they gain an understanding of the buyers’ objectives, any challenges they are trying to solve and associated internal timelines. This allows the business owner to reflect on their existing strategy, consider the potential benefits and synergies that a transaction with those buyers could create and make appropriate adjustments to enhance their strategic fit prior to any future deal. 

Organic Growth  

Alongside strategic fit, organic growth and potential to scale were high on the agenda. The consensus view was that buyers are attracted to businesses with pricing power and where there may be an opportunity to optimise capacity and/or provide additional products and services to the company’s (or buyer’s) existing customer base. For instance, businesses are particularly attractive where they have specialist capabilities and operate in markets with attractive long-term fundamentals, offering potential to internationalise or scale across the buyer’s existing geographic footprint.  

Stefan Wendel, M&A at Volaris Group, noted: “The businesses we find most interesting already have a strong, healthy core. Customers depend on them, the fundamentals are sound. We believe we create value by helping to lay free that core, driving laser focus on what made the business great, supporting the discipline to not let that erode, and from that position of genuine strength, enabling profitable growth that actually lasts.” 

Even though organic growth is usually front of mind for business owners, we sometimes find that bandwidth constraints limit their ability to clearly evidence the underlying drivers. Given the importance buyers place on sustainable organic growth and its potential impact on valuation, business owners can benefit from tracking year-on-year revenue from existing customers, new customer wins, pricing, volumes/utilisation and any churn. Maintaining good-quality management information, such as a sales pipeline and customer, product and service-line data can help substantiate the track record and give buyers confidence that historical growth is sustainable and supported by a credible plan to convert identified opportunities.  

Compliance & Quality  

Robust compliance, operational quality and resilience were the final themes that emerged. As regulatory and compliance requirements continue to evolve, buyers are increasingly focused on operational resilience and understanding any potential risks. Common areas for due diligence include people, health and safety, IT infrastructure and cyber security. In regulated sectors, such as childcare, a track record of positive Care Inspectorate ratings will be one of the first things a buyer considers. Similarly, alignment with Consumer Duty and a strong focus on client outcomes is essential in the financial services space. 

Duncan Thorburn, Senior Investment Manager at Foresight Group and Director at Pinocchio’s Children’s Nurseries, commented: “We evaluate opportunities for Pinocchio’s by focusing on businesses with strong regulatory quality and resilient cash flow characteristics. Our approach emphasises value creation through operational improvement, network expansion, and strategic acquisitions, while maintaining a consistent focus on quality of care and regulatory compliance.” 

Evidencing that a business has a track record of strong regulatory compliance is possibly less exciting than positioning its strategic fit, however it forms a key part of any transaction and deserves appropriate attention. In our experience, momentum is key in deals, particularly during due diligence, and a buyer will gain confidence if the seller can quickly produce up-to-date policies and procedures, alongside accurate historical records and correspondence. 

Overall, buyers want to understand the underlying quality of a business, its strategic relevance, the sustainability of its growth and the strength of its management and operating infrastructure. Preparing for these areas ahead of a transaction can help owners demonstrate the quality of their business and position themselves more effectively when the right opportunity arises. 

Get in Touch 

The Johnston Carmichael Corporate Finance team has recently advised on the following transactions: 

• Sale of Zonal to Volaris; 

• Sale of Johnston Carmichael Wealth to 7IM; 

• Acquisition of Pinocchio’s Children’s Nurseries by Foresight Group; 

• Acquisition of Mechanical On-Site Services by Denholm Energy Services; 

• Sale of Sub-Drill to Carco PRP; 

• Sale of Taylor & Fraser to Suir Engineering; 

• Multiple acquisitions for Certek Group; and 

• Acquisition of Weatherproofing Advisors by J&J Denholm. 

If you would like to discuss a potential acquisition, investment or disposal, please feel free to get in touch.