By Neil King
Acquisition may be a great way to grow and develop your business, but is it something you should do? We look at the pros and cons
Why would I want to acquire a business?
Acquiring another business is the fast-track way to growing your own business. It can increase your market share, scale your operations, help you cover a greater geographic area, bring you new customers, expand your resources, remove a competitor and more. There are a lot of benefits.
I’m sensing a ‘but’. . . ?
But there can be cons. So be careful. Obviously you will usually need a lot of money to acquire another business, so you have to make sure you’re doing the right thing, buying the right company, and making the right move for your business, you customers, your stakeholders, and yourself.
So what are the cons you speak of?
Problems can crop up anywhere. You will suddenly have a huge new workload, and new responsibilities, as well as having to learn the acquired business inside out. As well as paying for the acquisition you might need to pay for things like rebranding, and so on, as well as dealing with a different working culture. Your costs might also go up due to the reduction in competitors, which might put off some clients or customers.
How do I start an acquisition?
First you need to identify a company to acquire, then you need to research the feasibility. Find out all the relevant financial and commercial information you can, and then develop a detailed business plan, balance sheet, cash flow projections, and so on, so you have something to show potential financiers. After this, put together an appropriate deal and present it to the company you’d like to acquire, raise the required funds, complete final negotiations, and – fingers crossed – you’re ready to sign the legal paperwork.
It sounds quite stressful
Well, there are companies who will do it for you – financial advisors, and so on. They will take the difficult and complex parts out of your hands, and guide you through the process. It means paying additional fees, but there’s a chance they could negotiate a better deal for you.
Absolutely, its always better to find the right advise before you acquire any business, even if you start a new business.
Business advisors like us have plenty of experience in the market by assisting number of happy clients.
Asst. Vice President
Depending on whose research you believe, something between 40 and 90% of acquisitions destroy shareholder value for the acquiring company. Often the assumed "synergy" simply does not materialise. However CEOs love doing "big deals" - which may be why an acquisition is frequently proposed where the less glamorous route of steady organic growth is likely to produce better long-term results.
Advisors will often encourage an acquisition in the expectation of a fat transaction fee, so don't expect them to challenge the assumptions too hard......