Archive for June, 2014
At first sight the answer will be one of the following: Open another location. Offer your business as a franchise. License your product. Enter into a Joint Venture. Diversify. Target other markets. Win a government contract. Merge or acquire another business. Expand overseas. Capitalise on the internet opportunity.
But when this question was asked at the Business Exposure Group meeting, most attendees felt that they would grow their business organically, because they knew the business inside out and were able to quickly take advantages of changes in the market place. They felt happy growing at a comfortable rate, but realised that they were limited by their own cash and own ability.
It wasn’t until the Chairman of the Group suggested that those pursuing organic growth were making it hard for themselves.
In today’s environment, it is difficult to grow revenues with the economy growing at a slow pace. The only businesses that can confidently grow organically are those who have developed a unique business model. So as an alternative, a question was asked of the Group. Is it cheaper to buy customers and brand loyalty by acquisition than it is to build them?
An interesting discussion followed which majored on cherry picking non-core contracts operated by your competitors which could fit nicely within your business. These can often be bought cheaply as they are a distraction in the competitors company. Add them to your own business and you can immediately have the benefit of say another few hundred thousand pounds worth of turnover hitting your bank on a monthly basis, coupled with access to the customer list for your current offering. With money cheap to borrow it was agreed that a small acquisition to either buy customers or to buy products and technology was an interesting opportunity.
A smart takeover can present an opportunity to also cut costs at every level and if you have a greater market share after the deal then prices can be moved upwards. Those of the members who had acquired contracts from competitors or full acquisitions had the following cautionary points.
- Focusing on a second business can destroy your original vision.
- You may be entering markets where you have no expertise.
- If you do not communicate with second tier management (who are your future stars) at the time of carrying out due diligence, then inevitably you will lose key staff to competitors and quickly your acquired business looks a lot worse.
- Most mergers focus on financial and business systems integration, but the soft factors of culture is the difference between success or failure.
The Group considered whether an acquisition – should you go for scale or scope? Scale involves a lot of overlap, whereas scope shows a diversified target that can make your business far more resilient, not least by having additional staffing skills, but opening up new markets with a business that has a track record.
If you can build an appetite to consider acquisition deals, statistics show that companies that have done no acquisitions in the last 5 years, turned in a poorer performance than those companies who did deals.
Certainly food for thought if you are up for the challenge.