May 24 2011
Many company owners I’ve spoken with lately are looking at ways to take advantage of low capital costs in order to grow their companies. Traditional strategies like geographic expansion, adding product lines or increasing sales teams are often the first strategies that come to mind.
Another viable option that can often accomplish many of those same objectives is to initiate a growth through acquisition plan. Sometimes an acquisition plan can cost the same as growing organically. However before a company embarks with this strategy the following factors ought to be considered.
What size of an acquisition can my company support? Since valuations of target companies are still at pre-recession prices, having free standing cash or the assets to borrow money at a reasonable rate makes this worth considering. A discussion with your banker and accountant should allow you to determine what size investment your company can withstand.
Does your company have the time and resources to engage in this process? Dedicated time and focus are required to have a successful acquisition process. It requires assigning the process to a person with the right knowledge base and experience in speaking to prospects and communicating the right message.
Can your company live with a culture of uncertainty that often comes with an acquisition strategy? The acquisition process often encounters many ups and downs with each transaction. Often unfavorable discoveries late in the game can lead to all parties failing to agree on the final terms of the sale. Throughout the process it is important to keep in mind that a deal is not a deal until it closes. Only 40% of transactions close after the parties sign a Letter of Intent.
Growing through an acquisition can be an efficient way to accomplish a growth strategy. Often you are buying an established stream of revenue as oppose to building a source from scratch. However like any other growth strategy it requires a well thought out plan, dedicated resources and a flexible mindset to optimize the execution and results.