Four reasons why growth through acquisition can be a very appealing option

Four reasons why growth through acquisition can be a very appealing option

Growing businesses through acquisition is more common today than ever before. Commonly entrepreneurs and corporates view acquisition as a part of their overall business growth strategy.

Why might you consider growing your business with the purchase of a “going concern”? Here are four reasons why grow through acquisition is an appealing option

1. OFFER NEW SERVICES TO THE EXISTING CUSTOMER BASE

If you have built up your business and have established an attractive customer base, then buying another business may offer the perfect way of selling new services to existing customers. With a pre-existing customer base it is often beneficial to both clients and service providers to offer a range of services, whether bundled together or not.

You understand your clients’ habits and buying patterns. You may also have access to some of their personal data, which gives you an edge in selling new products or services to them. Essentially, buying a business which offers a related service to your current offering allows for ‘bolt on’ opportunities.

Increasing the overall range of services to the same client base is something many strategic business leaders have done to grow companies. For example, when Microsoft bought LinkedIn, there were two principle drivers.

Firstly, they wanted to increase the range of services on offer for further engagement with business people.

Secondly, they saw opportunities to improve the monetisation of the LinkedIn brand by attaching their advertising platform to it. Certainly they are in a much stronger position to monetise the platform.

Can you identify similar opportunities?

2. GREATER ECONOMIES OF SCALE

Businesses can improve performance through greater efficiencies and increased gross profit margins, - and the easiest way to achieve this is by developing economies of scale. Reduction of costs per sale, and reduction of overheads can be most quickly achieved through business acquisition, and consolidation.

The strategic buyout of competitors can lead to a consolidation of opportunities, and reduced competition. This can increase profits by reducing the number of offices used, sales teams, and support staff - as well as the increase in turnover

3. MORE INNOVATION AND DEVELOPMEN?

Although there are many considerations to make when weighing up a business acquisition, one that should be a high priority is your ability to innovate. Does your business struggle to continually come up with new ways of doing things and to develop its products and service offerings? Even business which have invested in research and development end up taking considered gambles on what might happen, and could be missing out on the ‘next big thing’.

As a result, business acquisition, particularly in the niche, start-up business may well be the most direct way of getting something new, before opportunity passes by. Finding new ways of fulfilling customer demand means not just relying on your own R&D, but recognising when an external company can give you something today, which may take months or years to develop, or perhaps wouldn’t even be possible without the relevant Patents and Intellectual Property.

Buying a company can frequently be the best way of hiring the skills and specialist knowledge your company needs. For example, when Fitbit spent $40 million to acquire Pebble’s software assets, they did so because they had identified that Pebble’s engineers were developing the next generation in the smartwatch market. By buying Pebble, Fitbit successfully incorporated their R&D and engineering skills into their own product development structures, thereby allowing Fitbit to challenge the other big players in the market.

4. GROW MARKET SHARE

One of the chief reasons to grow a business through acquisition is to build up market share. Buying competitors can lead to new opportunities and to move into new markets. Greater market share can help you to avoid excessive localised competition which can lead to tighter profit margins, especially if you are competing on price alone. Acquisition of an established competitor is often a quicker route to growing your market share than attracting new customers to your existing brand.

Remember that building market share establishes new relationships and builds loyalty between your business and customers which, in turn, protects your business from competitors seeking to grow their market share by nibbling away at yours.

Customers and staff like working with “winners” – and grow through acquisition gives the appearance that your company is a “winner”.

LOOKING TO GROW THROUGH ACQUISITION? SPEAK TO THE INDEPENDENT EXPERTS