Business owners are always in constant search of how they can keep achieving growth despite the slow growth of the economy through acquisition. They always aim to make more profit and cater to a larger customer base. However, the problem is which method they shall use best in growing their business in the slow-growth industry at a rapid pace.
One way to keep achieving growth is through mergers and acquisitions (M&A). Many companies utilize this as they seek to expand their products and services (diversification) or their geographic boundaries. For instance, they could expand from one region to another, or even a country to another.
As for the goal of expanding to a geographic region, more factors will have to be considered, such as language, customs barriers, recruiting of personnel, and many more.
Whatever the goal is, these companies are often faced with a choice between internal growth or acquisition. Growth through M&A is surely faster, but other outcomes are unpredictable. For example, Companies may grow within their own industry or they may expand outside their business category.
Advantages and Disadvantages of Acquisition
It is never easy to attain consistent growth in a very small industry. Corporate managers are always pressured on employing strategies for more returns. In fact, there is only one-tenth of 1 percent of the corporations and businesses will reach an annual revenue peak of $ 250 million. There is plenty of research that supports this. It’s even more difficult when the company has been expanding in the past and the products and services soon slow down.
When this occurs, companies often opt for strategies that result in revenue growth and profitability through synergistic gains such as M&A.
Acquisition by a Small Business
Acquisition is usually just a big-business strategy especially when achieving growth because it is only them who can acquire such companies. Small businesses usually can’t afford the large amount to cover the purchase price. And even if they can, the risk that it is a bad purchase is just too big to deal with.
Market Shares
This strategy secures larger market shares and more revenue. With it, you diversify products and services, as well as long-term opportunities for your business. Your business can expand its reach and increase market share with increased economic activity,
When it increases, it becomes harder for your competition to compete. In these cases, there are three options: cease operations, be content with a small market share, or be another acquisition of your company.
The downside to this is that it is much easier to generate sales growth by simply adding the revenues of acquisition targets than it is to improve the profitability of the overall enterprise.
The Global Market
The acquisition enables small industries to achieve growth to establish powerful positions in the market and even encourage them to break geographical boundaries. You can use the distribution channels and/or systems from the business that is being acquired for the existing customer base. This makes it possible to penetrate the existing market while also marketing the existing products and services to the new market.
Efficiency
Acquiring another business is a great way to grow without the necessity to wait for years on marketing and sales strategy to pay off. However, it could also be very demanding to the management despite the immediate growth. Combining both businesses can result in a lot of new issues that were not there before.
There are a lot of requirements such as a bigger customer base, a variety of markets, portfolios that are more complex, and higher people in management and complex operations. This is why a third, or at least 75% of all acquisitions fail to deliver on the predicted value or efficiencies.
Ways of Acquiring
One key factor that could determine the success of your acquisition or integrative growth strategy is the way by which you acquired a company. Here are three ways:
In Horizontal
This involves buying a competing business or businesses. If you want to add to the growth of your company and eliminate another barrier that stands between you and future growth.
In Backward
This involves buying one of your suppliers as a way of controlling your supply chain better.
In Vertical
Part companies that are part of your chain of distribution. For example, you could promote your goods at the cost of your other rivals to start buying retail stores.
Read also: Do Diversified or Focused Firms Do Better Acquisitions?
Making the Decision
There are plenty of decisions that will affect your business’s success and deciding to make any sort of deal is just the first. With this in mind, you start to wonder if a merger and acquisition is the most logical step for your business. Because of this, you want to study and understand every aspect including your odds at success and whether or not the challenges are worth the try.
If you have finally analyzed the situation and you’re confident in buying one or more companies, the next step will be easier. You just have to bring a team of experienced advisors. A lawyer, an accountant, a business broker, and a commercial real estate agent, to help you begin searching out the right business to buy, negotiating, and managing the transition.
Take as much time as you need, do your due diligence, and make sure that you are not in a hurry when it comes to decision-making. Even if your company is qualified for growth through acquisition, acquiring one that doesn’t fit well or doesn’t offer enough positive return on investment can shatter your goals.
How to Grow Through Acquisition
They say that the key to achieving growth by acquisition is acquiring a business that has synergy with your existing business. Try and go outside the box, there is no limit and you have more options other than buying out direct competitors.
As you go through this, you will find that it is not uncommon for any company to take advantage of each other’s distribution channels by buying another company. This is done in able to expand to other markets.
There is also the option of buying or purchasing another company that is in the same industry as long as it is indifferent geography. With this, a business can now compete better regionally or even national.
If you think that acquisition is not suitable for your small company, you can employ other growth strategies like intensive growth. This involves market penetration development, product development, new products, and many more. You can also seek to diversify how you expand your company by completely unrelated products or services.
As with everything in life, there is no instant gratification to growth strategies. You have to be willing to change the course depending on the feedback you will get from your market. This is extremely important.
Conclusion
Most times, it takes at least a year for companies to develop a strategy and by the time they try to implement said strategies, they find out that the market has changed.
And besides, growth should always ensure that it will generate good returns for shareholders. Most of the time, it is possible for managers to continue to generate acceptable returns by keeping a company at a given size, but instead, choose to pursue aggressive and unmanageable growth. Don’t let this happen to your company.