Achieving Growth by Transformation Involves Digging Deeper 

By Laura Jordan, partner and head of corporate, at Anthony Collins

Corporate deal-making is often seen as a route to achieving growth and realising economies of scale, but there can be so much more to gain. Increasingly, corporate transactions are viewed as opportunities to transform into better businesses by driving revenues, boosting productivity and improving resilience. 

Recent increases in employment-related costs, such as Employer National Insurance Contributions (NICs) and the National Minimum Wage, have adversely affected many businesses. Those that rely heavily on low-paid workers, such as organisations in the health and social care sector, are finding it increasingly difficult to remain viable. For organisations in this sector, achieving growth through merger and acquisition (M&A) activity could be an opportunity to diversify and create new revenue streams, or to modernise operations in ways that can improve efficiency and resilience.   

With more business owners looking to sell, investors are looking for the right opportunities to expand their businesses – for example, by offering new services where specialist skills are required. In these situations, M&A activity can be driven as much by the skills base of the workforce on offer as the organisation’s EBITDA. In other situations, AI and digital technology skills may be sought after, particularly if the target company is already using a sophisticated digital platform that the buyer could develop or use more widely. 

Digging deep to find out what a target organisation might be able to offer a buyer is essential, and this should be explored fully at an early stage in the deal-making process. Professional advisers with good commercial understanding have an important role to play in helping the buyer to ask the right questions now that could support post-deal integration.  

For businesses pursuing a sale, a similarly forensic approach is required when considering how to attract potential suitors. For example, if the business is using GenAI in areas such as HR, it could be important demonstrate how this might have introduced efficiencies. Similarly, data-based models developed by the business to manage suppliers could have a significant value in addition to EBITDA. Placing more value on the balance sheet at the outset could boost its appeal to potential investors. 

Once deal negotiations are underway, both buyer and seller should view the process as collaborative and aim to be as transparent as possible from the outset. Rather than viewing it as a transactional process that ends on completion, they should stay focused on practicalities and look for early opportunities to smooth the post-deal experience. For example, the owner of a residential care home pursuing a sale might be concerned about what is going to happen to residents and staff post-completion. In this scenario, they may need to jointly decide on the best way to communicate with these key stakeholder groups.  

Professional advisers with strong sector knowledge and commercial understanding can help businesses to identify and prioritise practicalities as part of the deal-making process. Smoothing the transition of services to the new owner is a priority to minimise disruption for customers and employees, but it is also important to ensure the pipeline of new customer referrals is still active, so early communication with the commissioning authority could be crucial. On the other hand, adopting a new tenancy agreement for a specific property is unlikely to be unsettling for customers and staff, which means it could be dealt with post completion. 

There can be a tendency for deal makers to rely on policy statements, such as AI usage and ESG policies, and assume they are enough. To mitigate risk, organisations should always ask for more detailed information and ensure that they have an accurate understanding of how policies are being followed. Sharing information openly during the due diligence process, using non-disclosure agreements where necessary, can help to build trust and accelerate the pathway to completion.