The savvy business owner will always look for ways to best grow his or her business into the future. Business growth can come in a variety of ways:
- Hiring on new staff/adding more clients
- Offering additional products or services
- Expanding into new verticals or geographic markets
This type of organic growth is a vital component of a company’s strategic plan; however, if you have your eyes set on a more aggressive approach, then implementing an acquisition strategy may be the best place to invest your time.
Understanding the acquisition strategy
The most common approach to acquisition involves one company buying another company (either with cash, stock, or a bit of both). Regardless of how the company is bought, the end goal is to increase the value of the purchasing company.
By acquiring other companies, this purchasing company can achieve economies of scale, greater system efficiencies as well as increased market visibility. Other positive outcomes of an acquisition include an increased client base and shareholder value, as well as the potential addition of talent, which is a coveted result for talent-strapped industries (engineering comes to mind).
Putting your company into position to acquire another
In order to put your company in position to acquire another, you have to factor in four criteria:
- Prosperity – Ensure your company is financially stable, with a record for success. Assessing the prosperity of your company can be performed through various elements, including your client base, lack of debt, depth of your talent, equity held in equipment and more. Aside from proving your company’s present and past stability, it’s vital that you have a bulletproof strategic growth plan in place to demonstrate continued growth and success.
- Your business model – Your business model should be reflected with a strategic plan, with a focus on identifying acquisition needs. Focus on the areas where your company is most successful, and use that as a foundation for your corporate vision. As solid as your business model should be, it should also allow room for flexibility so that you can adapt to unexpected or sudden market changes.
- Don’t be the strongest member of your team – Make sure that your company has a strong management team in place. By “strong” we mean a team of trusted executives who understand the ins and outs of your business and who are capable of enforcing your corporate culture. Beyond the walls of your company, your management team should also have a keen understanding of your marketplace, as this will aide in a smooth transition during any acquisitions that take place.
- The capacity to complete your acquisition – Obviously you must be certain you have either the cash, or access to capital (and the borrowing capacity) to complete your acquisition. You may want to seek out lenders with insight of your business, and then plan ahead for all the capital you’ll need.
Work with an expert in acquisitions
If you believe your company is in good standing to acquire another, your next step is to work with an M&A advisor or investment bank who offer vital strategic support.
Acquiring another business involves understanding all of the potential outcomes (and financial consequences) involved in the deal. For example, when acquiring a new company, certain positions may become redundant. Prior to your acquisition, you should identify your core team – the people who you deem as irreplaceable. Once this core team is identified, we encourage you to involve them early on in your growth strategy. For the rest of your team, we recommend you wait until after the transaction is complete to inform them, as many deals simply don’t survive until the end.
An acquisition advisor will prepare you with the what-if scenarios and help you build a complete strategy to not only ensure a successful acquisition, but a smooth transition as well.