Acquisitions land a checkmate for Chess Telecom

Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInEmail this to someone

A recent spate of acquisitions by north-west based Chess Telecom had produced an impressive leap in turnover, with growth of 33% to £74m reported in its latest set of financial results. The figures are indicative of the rapid rewards obtainable via a well thought out acquisitive growth strategy.

Business looking to expand are regularly faced with the dilemma of whether to focus their efforts on internal, often referred to as ‘organic’, growth; or to take the plunge and purchase another business, whether that be a competitor in the same field or an enterprise that occupies a different marketplace altogether.

Organic growth can be achieved in a number of ways, from developing new products to recruiting individuals with fresh expertise. As this form of expansion can often be funded from reserves and implemented gradually as a business’ revenues creep upwards, in most circumstances it is the safest option. This is particularly true for new companies short on capital that are still looking to secure a foothold in the market. However, organic growth also tends to be a relatively slow process and there is no guarantee that the costs incurred through investing research and development or upskilling the workforce will produce the desired results.

Although it is more risky, acquisitive growth has the potential to bring significant rewards almost instantaneously – after all if a business purchases a business with a similar turnover to itself revenues will be doubled following completion of the deal. Increased market presence and a wider geographic footprints are just two other handy byproducts.

Careful consideration must be given to targeting the most appropriate acquisition prospects, and this is something that Chess Telecoms appear to have done successfully. Noticing a negative trend in their fixed-line call revenues, Chess looked to diversify its operations by the acquisition of companies with expertise in cloud computing and IT sales. This has enabled the company to future-proof itself at the drop of a hat, as opposed to painstakingly adapting its internal operations and training its staff. When diversifying it should nonetheless be borne in mind that the further a purchaser strays from its core competencies, the more difficult it can be to identify the right target and subsequently integrate the businesses.

Once the target has been selected and funding has been put in place, it is vital that extensive due diligence is undertaken to ensure that the company being bought does not come with any nasty surprises. For instance the company in question’s main customer contracts may come with change of control provisions that, upon the purchase of the business, can be terminated without notice. Ascertaining the most appropriate and tax efficient structure of the deal is also imperative, and it is for these reasons that proper legal and accountancy advice should always be obtained during the course of a company purchase.

Forbes have helped a number of businesses to grow in this manner over the past year and have extensive experience in the field of mergers and acquisitions. If you require any assistance with the sale or purchase of a business or need advice relating to any other Corporate matter, please do not hesitate to contact me at Pauline.Rigby@forbessolicitors.co.uk or on 0800 689 8689.

Pauline Rigby

About Pauline Rigby

Pauline Rigby is Head of the Corporate and Restructuring team at Forbes Solicitors. Pauline’s blogs cover a wide range of corporate issues, specifically areas including company formation, banking, joint ventures and shareholder matters, contractual matters and equity fundraising or investing.
This entry was posted in Corporate & Restructuring and tagged , , , , .

Leave a Reply

Your email address will not be published. Required fields are marked *