Business growth can occur in two ways: you grow organically or you scale up by merging with or acquiring another business (a strategic business acquisition). In organic growth, your business progresses naturally through the start-up phase to profitability. Then it scales its revenue, products and services. In contrast, business growth by acquisition happens through mergers and acquisitions. You buy a new business that offers something your business missing or would enhance something you have.
If you acquire another business, you’re making a large financial investment hoping that the return will far outweigh your initial investment. This financial risk causes many businesses to avoid business acquisition as a growth strategy. However, the key to a successful acquisition and reduced financial risk is a solid business acquisition strategy, Developing this strategy forces you to determine what business you’re looking for and whether it’s the right time to acquire it. An acquisition has to improve your position and have an overall positive impact on employees, shareholders and clients (which can be considerable). You must also do your due diligence on both your business and the one you want to buy.
Does an acquisition make sense for your firm? Here are five main reasons to consider acquisition as a growth strategy:
If you buy a competitor, you’re increasing your market share within a customer segment or location. If your current industry is experiencing a period of low growth rates and low competition, this acquisition could increase your competitive advantage.
If there’s a gap in your product or service offering, you could spend time and money developing what’s missing or just acquire it through a business acquisition. This added service could help you reach a larger or broader market.
Combining your business activities and strengths with another successful operator could increase your overall performance, efficiency and profitability. This is called a strategic merger and is a powerful growth vehicle.
Labor shortages affect many industries and many businesses prefer to buy out a company of talented people than recruit their own. This business acquisition strategy is common in cybersecurity, engineering, and accounting.
Rather than adopt and learn a new business model, some businesses buy an established one. This saves time on the learning process and the cost of making mistakes. It’s a short cut, but effective for businesses who can afford to acquire the knowledge they need.
Here are three steps you can follow to prepare your business for a merger or acquisition.=
If your long-term plan is to take over your competitors, you’ll need a lot of money to do it. The business acquisition process can be long and expensive, so make sure your business is financially healthy before you consider it.
Do you really have the capacity to acquire another business? Do you have a well-developed team? Where do you sit in the market? If there’s a weakness in your operations or people, build these foundations before you leap into an all-consuming acquisition process.
An acquisition is like a marriage – you need to be the right fit for each other. Business analytics could be the difference between success and failure, so find out all you can. Analyse the other company’s culture, leadership styles and future roadmap to decide whether your companies are aligned.
Business acquisition can be powerful for growth, but there are huge risks as well. It’s a game-changing decision, so get the right advice before you make the leap. Our Vault business advisors can help you to analyse your business and decide on the right strategy for you – organic growth or growth through acquisition.