Growth by Acquisition - Business Edge The pros and cons
By Adam
July 12, 2010
Small Business & Entrepreneurship
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By Mark Wardell
Although the majority of businesses grow organically, many owners will entertain the idea of making an acquisition at least once in their career. For some, growth through this method is a rare opportunity which is unlikely to be repeated, while for others, growth by acquisition is an important part of their overall growth strategy.
In all cases, the process of buying another business has its own unique set of challenges. So before embarking on the acquisition trail, it’s important that you gain as much knowledge about those challenges as possible to maximize your likelihood of success.
Acquisition may have a glamorous reputation in the news, bringing to mind splashy stories of large corporations acquiring the next big thing and successfully expanding their market share. But when it comes to logistics, this strategy is only right for businesses built on a rock solid foundation. It’s not about size. It’s just that the more self-reliant your current business is, the more likely you’ll be to succeed using this strategy. Buying a new business always involves hidden challenges – challenges that will cripple you if you don’t have the time and resources to tackle them properly because your current business still relies on you for its daily success. So, the starting point for any acquisition needs to be a strong, self-reliant enterprise.
Interestingly, the same criteria can be applied to your analysis of the company you intend to buy. In other words, the more self-reliant the targeted business is, the better your chances for long-term success. This is because the self-reliant business has a more predictable and resilient cash flow.
When your sights are set on the right business, the potential benefits are vast. Acquisition is a great way to instantly increase your sales and revenues and provide you with access to new markets. If your target business is truly complimentary to your current enterprise, acquisition can allow you to successfully expand your brand portfolio on the marketing side, while providing improved efficiencies and economies of scale on the business operations side. It can be a real win-win.
On the flip side, however, acquisition can absorb a substantial amount of time and money. More than most people expect. So be sure to invest heavily in the process of due diligence, investigating all of the potential hidden liabilities of the target company.
Once you’ve made your acquisition, you’ll need a strategy for the transition. This means mapping out how you’ll minimize any potential adverse effect on the customers of the acquired company, how you’ll handle the transition of ownership, and how you’ll create a positive, exciting and motivating transition for the current employees and managers of the target company. Just remember that you cannot transition that which you do not have. So make sure you have your own house in order before tackling business number two.
It takes some preparation, but an acquisition can be done extremely well with the right approach. As a growth strategy, it has the potential to reap serious rewards—if, that is, it’s the right move. Any questions? Drop me an email.
Mark is President & Founder of Wardell Professional Development , an advisory group that helps business owners plan and execute the growth of their companies. The author of seven business books, Mark also writes regularly for several national business publications, including Profit Magazine, the Globe and Mail, and CGA Magazine. Email him at mark@wardell.biz
Although the majority of businesses grow organically, many owners will entertain the idea of making an acquisition at least once in their career. For some, growth through this method is a rare opportunity which is unlikely to be repeated, while for others, growth by acquisition is an important part of their overall growth strategy.
In all cases, the process of buying another business has its own unique set of challenges. So before embarking on the acquisition trail, it’s important that you gain as much knowledge about those challenges as possible to maximize your likelihood of success.
Acquisition may have a glamorous reputation in the news, bringing to mind splashy stories of large corporations acquiring the next big thing and successfully expanding their market share. But when it comes to logistics, this strategy is only right for businesses built on a rock solid foundation. It’s not about size. It’s just that the more self-reliant your current business is, the more likely you’ll be to succeed using this strategy. Buying a new business always involves hidden challenges – challenges that will cripple you if you don’t have the time and resources to tackle them properly because your current business still relies on you for its daily success. So, the starting point for any acquisition needs to be a strong, self-reliant enterprise.
Interestingly, the same criteria can be applied to your analysis of the company you intend to buy. In other words, the more self-reliant the targeted business is, the better your chances for long-term success. This is because the self-reliant business has a more predictable and resilient cash flow.
When your sights are set on the right business, the potential benefits are vast. Acquisition is a great way to instantly increase your sales and revenues and provide you with access to new markets. If your target business is truly complimentary to your current enterprise, acquisition can allow you to successfully expand your brand portfolio on the marketing side, while providing improved efficiencies and economies of scale on the business operations side. It can be a real win-win.
On the flip side, however, acquisition can absorb a substantial amount of time and money. More than most people expect. So be sure to invest heavily in the process of due diligence, investigating all of the potential hidden liabilities of the target company.
Once you’ve made your acquisition, you’ll need a strategy for the transition. This means mapping out how you’ll minimize any potential adverse effect on the customers of the acquired company, how you’ll handle the transition of ownership, and how you’ll create a positive, exciting and motivating transition for the current employees and managers of the target company. Just remember that you cannot transition that which you do not have. So make sure you have your own house in order before tackling business number two.
It takes some preparation, but an acquisition can be done extremely well with the right approach. As a growth strategy, it has the potential to reap serious rewards—if, that is, it’s the right move. Any questions? Drop me an email.
Mark is President & Founder of Wardell Professional Development , an advisory group that helps business owners plan and execute the growth of their companies. The author of seven business books, Mark also writes regularly for several national business publications, including Profit Magazine, the Globe and Mail, and CGA Magazine. Email him at mark@wardell.biz