Are you wondering why people purchase businesses?
When it comes to reasons for pursuing an acquisition there is no one-size-fits-all explanation. The motives for business acquisition are as vast and varied as there are people.
Without doubt, acquisition is one of the fastest ways to grow your existing business, acquire assets, and new talent.
In this post, we’re going to take a look at seven of the more common reasons given for pursuing an M&A.
Let’s get straight into it.
Reason #1 Geographic Expansion
Growth is hard and expanding into foreign territory can be harder. Fortunately, you don’t have to go through the labor pains of birthing a business from scratch in another country.
By opting to acquire a business in a similar niche as your own or in an adjacent market, you’ve effectively skipped over (undoubtedly) the most challenging part of establishing a foreign company.
This new acquisition will have permits, staff, and assets in place already. All you’ll have to do is select a reliable and competent management team to oversee operations during the transition stage.
Takeaway: “Expanding geographically is a great way to expand your business footprint. It’s something to consider if your current market is saturated or about to be saturated soon.”
Reason #2 Business Growth
Businesses can go through different types of growth.
- Market share growth
- Revenue growth
- Client base growth
- Product offering growth
- Bottom line growth
- Locations growth
- Distribution points growth
While a company can indeed rely on its own organic efforts to experience growth, a business acquisition is by far the quickest way to achieve any type of growth.
If growth is what you’re after, it’s imperative that when making your selection of which business to purchase, you keep the type of growth you’re after in mind.
Takeaway: “There are many different ways to expand your business across a variety of areas to achieve different types of growth.”
Reason #3 Company Diversification
Why do businesses diversify? What are they after?
The long and short is reducing the overall risk involved with having a niche product or service offering.
A business acquisition provides you with a fresh client base which helps to diversify your existing customer base thereby mitigating client-based risk.
This business purchase may also open access to clients within a different income bracket than your usual ideal client. This now means you’ve got a wider spectrum of clients to work with.
Another advantage that comes with business acquisition is potentially inheriting a diversified vendor profile. New supplier relationships can open doors to new products.
Takeaway: “Diversification is probably one of the more popular acquisition strategies and can be seen as a way of de-risking your current business.”
Reason #4 Talent Acquisition
For years businesses in the same market have always competed for the best talent from the same pool.
Merging with a company with exceptional talent will definitely elevate your entire operations – so long as you don’t mess up the integration and transition phase.
In order to avoid a potential mass migration, you need to make sure you’re working with a seasoned M&A team consisting of advisors, attorneys, integration specialists, and attorneys to guide you along the path.
Takeaway: “An acquisition can give your company an immediate shot in the arm of talent that can be cross-trained and further de-risk the business and insulate it from employee turnover.”
Reason #5 Asset Acquisition
Contemporary businesses can be partitioned into different types of assets. From intellectual property to equipment and real estate, as well as social media handles, there is a lot of value to be had from an acquisition.
What might interest some people is the ability to pick and choose assets they’d like to purchase from a business. While this isn’t always a common pathway, it might be a possible avenue to secure some of the desired assets of another company.
Takeaway: “Business acquisition allows you to secure many types of assets which you can leverage to grow your existing client base or open up an entirely new client base altogether.”
Reason #6 Competitor Elimination
Rivals and competitors can make it extremely difficult to grow your operations. Anyone in business can tell you that.
Fortunately, you can opt to buy them out – at the right price and under the right conditions of course!
Takeaway: “Removing a competitor not only makes you large but can also give you some pricing and margin leverage that will make you much more profitable.”
Reason #7 Higher Value Multiplier
How much is your business worth? You might not be thinking of this if you don’t have plans of selling.
Regardless of whether you will ever want to sell your business or not, it’s good to know that the bigger your business gets, the higher your business value multiplier.
What this means in layman’s terms is that the higher your value multiplier, the more people are willing to pay for it if you ever decide to sell.
Takeaway: “Growing through acquisition can not only boost your top and bottom line, but it can also then boost the multiplier that your business receives upon a sale.”
The Bottom Line
If you’re looking to grow your client base, acquire experienced employees, boost revenue, and eliminate your competition, then there is no better way to achieve all of these objectives than pursuing a business acquisition.
If you’re currently thinking of mergers and acquisitions and need to discuss your options with an expert, don’t hesitate to contact us.