Archive for June, 2016

Growth by Acquisition

The simple way to expand your business is through hard work, there is no short cut to growth.  However, growth through acquisition maybe appropriate for small and medium sized companies looking to achieve rapid expansion.

What do you think of when you want to grow your business?

  • Catch your competitors off guard
  • Instant market penetration
  • Eliminate a competitor through acquisition
  • Is rapid growth too risky in a fast moving business world
  • Will staff cope

So, is organic growth too risky in our fast moving business world?  This was a question raised at a recent Business Exposure Group meeting.

It is easier to finance growth via acquisition than other routes of expansion.  Lenders are more impressed with real financials than projections.  Banks prefer to finance acquisition rather than projected traditional growth.

Ask yourself – does acquisition complement our services/does it align with who we are and what we want to become/does it enhance our profile.  For a business to be well positioned for acquisition it needs to be doing well, have a strategic business plan, a strong management team and access to capital before the deal takes place.  Is your foundation sound enough to acquire?  Will your key employees stay?

Acquisition is about getting skills and technologies faster or at a lower cost that they can be built from scratch.  Acquisition is even better than having a super-charged sales effort.

Acquisition is lower risk – expenses are predictable, but how do you find a company who wants to sell?

1. use your accountant/lawyer

2. contact the owner direct

3. look for people around retirement age

4. direct networking with business owners

With organic growth businesses, growth should be restricted to 5-20% per year.  So acquisition assists to go beyond that with control.

If you don’t have the money to buy

  1. use the seller’s assets
  2. buy with someone else
  3. lease with an option to buy
  4. assume liabilities or decline the receivables

One of the Business Exposure Group members who acquired last year said ‘Keep the businesses separate for 18 months and let the teams develop – if buying the business, but if buying the talent then integrate them into your business quickly before they leave.  Respect the existing product and/or services otherwise the newly acquired team will feel embarrassed and worthless’.

According to KPMG, on acquisition 15% of staff leave.  If more than 15% this will affect the DNA of the team that you have just acquired.

The discussion at the meeting finished with an agreement that time should be set aside each month to work on the business and consider if an acquisition should be targeted, but note that acquisitions usually stem from the sellers desire to get out rather than the buyers desire for a purchase

Advertisements

Leave a comment