Buying another business to integrate into your own is a strategic move that can increase your company’s value. It can also help you access new customers and resources, such as personnel.
Indeed, the world’s most successful companies ‘rely heavily on acquisitions to achieve their strategic goals’, according to former Pitney Bowes chief financial officer Bruce Nolop, who led many acquisitions during his tenure.
He says that while there can be risks, managers find that making acquisitions is a strategy that’s cheaper, less risky and faster than organic expansion.
There are many good reasons for acquiring another company. These include:
- Expanding your markets
- Acquiring people, systems or processes
- Acquiring new products, services or customers
- Achieving economies of scale
- Reducing expenses
- Creating opportunities for cross-selling
- Acquiring new distribution systems
- Eliminating competition
Ways to grow your business
Experts say that there are five ways to grow your business:
- Organic growth
The most obvious way to grow your business is organically. Essentially you need to increase your output (increase your capacity to make more products or offer more services to more clients) and increase your sales. It's much easier said than done, of course and this isn't the article to detail exactly how it can be done.
- Partnerships
Partnerships are another great way to grow your business. They allow you to work with other businesses to help promote each others products. For example as business brokers we look to develop working partnerships with accountancy forms, helping them provide a wider service to their client base whilst increasing our source of new sale mandates.
- Diversification
If you can identify a product or service which your customers often buy at the same time as yours, then why not set up a new division or product line to enable cross-selling opportunities within your business.
- Franchising
Franchises are businesses that operate under a brand name and business processes which are developed and owned by the master franchisor. The franchise model is one of the most powerful ways to build a successful business as it enables franchisees to build a new business with proven methodology and processes. Whilst franchisors must train franchisees in how to build and run the business, but the benefit is that franchisees by their nature will also be driven entrepreneurs keen to build their sales and profits.
- Mergers & acquisitions
A merger occurs when two companies combine forces to form a single organization. This type of transaction typically involves buying out a competitor. A merger can be beneficial because it provides you with access to resources and expertise that you wouldn't otherwise have.
However, there are risks involved with mergers and acquisitions. You must carefully consider whether the benefits outweigh the costs.
You can grow your business using more than one method at a time. But, as we have seen, acquisitions could be the perfect solution for your company’s growth. By accessing new products, services and customers, you could not only increase revenues, you will also eliminate competition.
While this sounds like a sound move, you have to be sure that the business you're considering is really worth acquiring. You need to carry out due diligence before making an acquisition.
Three simple questions
Ultimately, however, all legitimate reasons for contemplating an acquisition fall under one all-encompassing umbrella: the desire or need for quick and substantial growth.
To work out whether an acquisition makes sense for your business, ask three simple questions:
- What are the different ways I could grow my business?
- Could an acquisition help me achieve that growth?
- What larger, strategic goals will that growth help me to accomplish?
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