05 Jul 9 reasons to acquire a business rather than grow organically
The decision to acquire another business or not should never be taken lightly. While it can be a huge thrill to go out and buy businesses and close a deal, the numbers have to add up and you should make sure that you have an acquisition strategy in place before spending time talking to other companies about acquiring them.
Your acquisition strategy should be clear and thought of in advance, so make sure you understand what you are trying to achieve for the business, what kind of targets are you considering, what size business you are looking to buy, whether you are looking for businesses in distress or not and why, are you able to fix them?
It can be to easy to get distracted, when other companies know that you are looking for acquisitions you can be approached by all sorts of opportunities that might be outside of what you were considering. These opportunities may feel like an opportunity missed if you don’t look into them, however, it can be a slippery slope if you are prone to shiny bauble syndrome.
You may not have considered making acquisitions until now, relying on organic growth rather than making a strategic decision to acquire a business and grow your company in a short space of time. Perhaps you haven’t felt that you have the finances to do this previously, but there are many ways to structure a deal, so finances shouldn’t necessarily get in the way.
Here are 9 reasons why you should consider buying a business
- Grow your market share
Organic growth is all well and good, but it takes ages and it can never be guaranteed that what you spend you will get back. Acquiring a business in your market will immediately make you a bigger fish in the same size pond
- Expand into a new vertical
Rather than hire some experts in and build a new division it can be quicker and easier to buy your way into an emerging or established industry that you are currently not part of. Again, building from scratch is fraught withe trial and error, while buying a viable business and merging it into your operation can give you instant access to new markets
- Increase project pitching ceilings
If you are a service company or agency pitching for new business and you are good at it, you may have hit a ceiling whereby either current clients or new larger clients will exclude or restrict your opportunity size because your current turnover is below a certain threshold. This could be a great reason to buy a smaller competitor so that you are over the lower limits that a client may have in place, allowing you to then pitch for the larger opportunity
- Access to a differently skilled workforce
Imagine you are a computer maker and you want to break into the car industry (as if that would ever happen), you could either advertise for car industry professionals and hope that you find someone or you could buy a startup that has already hired the best in the industry. Some times you can’t access the best in another industry if you are not known for it and it could take a long time to build your reputation enough to get highly skilled people involved. Buy the startup, make the cars and put your computers in them. Tadah!
- Gain new technology
There may be a piece of software, service or product that you are paying through the nose for, how about acquire a company that already does or has that? Now you’re paying yourself for the service or product. Or look at Google, they bought Android, YouTube, Waze and DoubleClick, all stuff they could have probably built themselves but would have struggled with traction or costs
- Improve profit margins
Many times small or new businesses have much higher profit margins because they don’t carry the legacy staff or systems that create baggage and overhead for more established businesses. By acquiring a company like that you will be able to lift the overall profit margin of the business, or increase margins by cutting backroom costs for both businesses like accounting, or other administrative costs.
- Remove a competitor
There’s nothing Machiavellian about taking a competitor out in business, it’s just business after all! Having a competitor in the same market can push prices and value down, it can create buyer confusion or it could push marketing budgets up. By buying out a competitor you can deal with some of these problems as well as gain lots of other benefits at the same time
- Create new value
The Medicis were an Italian family that grew to huge amounts of influence during the renaissance. They had started out in textiles but ended up producing popes and royalty from their stock. How did they do this? They brought new ideas to old stablished ways of doing things by entering industries that they had no experience in. The juxtaposition of two completely different ways of doing things or experience being brought together will create new value, new ideas and new opportunities, there’s a book called the Medici Effect if you want to read more about this
- Allow you to step back from the business
You may have run your business for many years and would like to step back and take a more strategic role rather than an owner/manager. By acquiring a similar company to your own, you will have access to the management team with the same skillset as you. Most likely the acquired management team will be more than happy to be put in charge of the bigger entity, allowing you to take a step back, maybe completely or in a Chairman of the Board type role. This will free up your time to look at more acquisitions too!
Making an acquisition can be a long and arduous task, as finding the right targets can be time consuming, often it can be awkward to approach a competitor in case they say no. Capital A are a strategic acquisition search partner. We can fill your pipeline with acquisition targets, make a first approach to see if they’re interested and negotiate an offer, if you would like some help in this department then please get in touch.