When Should I Consider an Acquisition in Growing the Value of My Business?

Considering an acquisition as a growth and value acceleration strategy for your business can be beneficial in various circumstances. Following are situations in which you should consider acquisitions:

• Market Expansion: Acquiring another business can provide a faster and more efficient route to expand into new markets. If you have identified potential growth opportunities in a different geographic region or target market, acquiring a business with an established presence in that area can give you immediate access to customers, distribution networks, and market knowledge.

• Diversification: Acquisitions can be a strategy for diversifying your business's offerings. By acquiring a complementary company that offers products or services related to your existing offerings, you can broaden your product portfolio and reach a broader customer base. This diversification can reduce your reliance on a single product or market and provide opportunities for cross-selling and upselling.

• Competitive Advantage: Acquiring a competitor or a business with a unique technology, intellectual property, or market position can help you gain a competitive advantage. It can allow you to eliminate competition, increase market share, consolidate industry resources, or access innovative technologies that give you a distinctive edge in the market.

• Talent and Expertise: Acquisitions can be a means to acquire skilled employees, specialized expertise, or talented management teams. If you want to strengthen your team or enhance your capabilities in a specific area, acquiring a business with the desired talent and expertise can provide a quick and effective solution. This can help accelerate growth, improve operational efficiencies, and drive innovation.

• Cost Savings and Synergies: Acquisitions can result in cost savings and operational synergies. By integrating the operations of the acquired business with your own, you can eliminate duplicate functions, consolidate supply chains, and leverage economies of scale. This can lead to improved efficiency, reduced costs, and increased profitability.

• Access to Resources and Assets: Acquiring a business can grant you access to valuable resources, assets, or distribution channels that would be challenging or time-consuming to develop internally. These resources may include manufacturing facilities, intellectual property, customer relationships, supplier contracts, or proprietary technology. Acquiring such assets can enhance your competitive position and accelerate your growth trajectory.

• Strategic Opportunities: Assessing market dynamics, industry trends, and competitive landscapes can reveal strategic acquisition opportunities. Identify a business that aligns well with your long-term strategic goals or fills a gap in your capabilities. An acquisition can be a strategic move to capitalize on the opportunity and strengthen your overall position in the market.

Conducting thorough due diligence and analysis before pursuing an acquisition is essential. Assess the financial viability, cultural fit, legal and regulatory compliance, and compatibility with your existing operations. Engage professionals, such as Business Brokers, Investment Bankers, and M&A Advisors, to assist you in identifying potential targets and navigating the acquisition process.

Remember, acquisitions can be complex and involve risks, so careful planning and strategic alignment are crucial to ensuring a successful integration and achieving the intended growth objectives.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

A Growth Plan Helps To Maximize Your Business Sale Price

Every sale of a business requires negotiation.  The buyer is purchasing the future potential of the company and is aware that they can only learn so much in a due diligence process.  The seller’s strong management team, documented procedures, and portfolio of recurring revenue clients, and other value drivers will move a buyer forward. And, if a seller wants to further strengthen their story at the negotiation table they will be prepared with a documented strategic plan for future growth.

What’s in a Growth Plan?

An effective growth plan is far more than numbers on a spreadsheet.  It addresses these key questions:

• What will our revenues be in the next three to five years?

• Who will our clients be, and what new markets will we pursue?

• What services will we continue to sell, discontinue?  What new services will we offer?

• What is the profitability of those products?

• What resources are required to accomplish our goals?

• Who will be responsible for each element of the plan?

The Effect of a Proven Growth Plan…

Demonstrating that the management team not only exists but can perform.

• The position of the company in the market is clearly understood.

• The projected cash flows are credible.

• Enables a higher starting point for negotiation.

This last benefit is perhaps most significant.  As we all know, the value of a company is a function of Cash Flow/EBITDA,  and this is the starting point for negotiation. 

Now consider two companies…

Both Company A and Company B have a $ 2M EBITDA and a multiplier of 5x.  The value = $10M.

Both companies say they plan to grow to $4M EBITDA in the next 5 years.  However, Company A has no track record, but Company B has demonstrated growth plans.  And they have defined this growth plan as thoroughly as they have in past years. 

While Company A has little basis to start over $10M ($2Mx5), Company B may have a credible basis to start negotiations at $20M valuation ($4Mx5). In a competitive market, developing and executing on growth planning will position your company to maximize its value at sale.   

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.