Growth by Acquisition
If you pay attention to business news, you’ve noticed a louder buzz around M & A topics. The experts say we are still in a Seller’s Market, especially in certain industries like IT and Healthcare. A common growth strategy for many companies is to acquire smaller ones that strategically fit with their products and services. Even though the market may be leaning on the seller’s side for the time being, you can still find good deals as a buyer and achieve your growth goals by finding smaller companies with the features you desire, but lack the cash flow necessary to grow, which is why they need you. When you consider all the ways you could scale your business, focus on your top one or two options. If your choice is to buy another business, the burning questions is, will you integrate it with your current company or will it stand alone? I recommend you begin your Due Diligence early. Start by making a list of needs and wants from a purchase and picture how your current business will operate and look differently after the deal closes. Then make a list of non-negotiables; what are the deal breakers?
Use the Value Driver list below to help you decide what your company’s current strengths are and how you could fill the gap with an acquisition. Focus your match as much on Culture and Values as on other objective factors.
Note: Most companies fail to integrate well due to a mismatch in values and culture; risking a death by acquisition!
Value Drivers (not ranked in order)
- Intellectual Property (trademarks, patents, brand)
- Customer List (none over 15% of company sales)
- Industry Reputation (online reviews, trade associations)
- Corporate Culture is strong and decisions are made based on company Values
- Google rankings
- Customer Loyalty (surveyed regularly; satisfaction guaranteed)
- Recurring Revenue (contracts, subscriptions, sunk-money consumables)
- Not dependent on owner(s) for day to day function
- Strong financial performance (heavy cash, low debt, high margins, managed fixed costs)
- Steady growth of sales year after year
- Cash Flow is strong (pay up front, A/R short term)
- Key Leaders have Retention Programs
- Well-trained, loyal employees
Differentiators in products or services, but not too many of them and not too (if at all) customized
Neutrality with suppliers, employees (not too dependent on any one)
Scalability: Horizontally, Vertically, Geographically, Culturally
There are many other factors that can determine value, but these are the key drivers. Use this list to determine how an acquisition would benefit your current business and as a gauge for vetting candidates. Finding a company to buy is a lot of work. You need a good advisor to help you through the process, but even more so to help you integrate the two together. The Integration stage has a very high rate of failure, so call me when you’re ready to start the conversation. I can not only help you with the acquisition but with the integration too and set you up for a much higher rate of success!
This article was written by Julie Keyes. Julie is a Certified Exit Planning Advisor (CEPA) in Minneapolis, MN specializing in exit consulting for small business owners. Julie has been an entrepreneur most of her life. She is on the faculty of the Exit Planning Institute, a member of its Leadership Council and two time recipient of EPI’s “Thought Leader of Year” award in 2017 and 2022. Julie recently released the 2nd Edition of “Poised for Exit: A Woman Entrepreneur’s Guide to Business Transition”. Her weekly podcast, “Poised for Exit” can be found on all major podcast platforms. On a personal note, Julie and her husband Shaun have 8 children and 10 grandchildren.