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Are you looking to grow your business?
Growth by acquisition often seems like a pipedream for most small businesses - something that is reserved for larger companies or giants like Microsoft, Apple, Facebook, Amazon, or Google.
These types of businesses win market share through a constant, strategic game of mergers and acquisitions.
Because sometimes it’s just easier to buy it rather than build it!
However, in Australia our SME community also has a progressive outlook on acquisitions.
Australian SME's are interested in acquisitions for rapid growth.
Growth through acquisition is a mentality that filters down quite extensively into Australian small businesses. Our SMEs are just as interested as large businesses in making an acquisition to foster rapid growth. In fact, a recent RMIT study pinpointed 44% of businesses are open to acquisition and that 3 out of 5 businesses open to making an acquisition were in fact small.
While people buy for a multitude of reasons, the first and foremost reason is growth (remember the build vs buy mentality).
It can be much faster to grow your business through the strategic acquisition of whatever you’ve deemed a driver for growth, whether that be highly skilled people, more market share, or a patent which could cause your product or service to ramp up exponentially.
And from this study, we’ve learned that while most businesses are open to acquisition, only about 5% are actively pursuing it, compared to 33% growing their current markets.
Benefits of a Strategic Business Acquisition
Either way you look at it, growth is expensive.
If you choose to grow your business organically, you’re tied to a structured evolution of start-up, small business, sustainable business, then profitable business all based on your revenues coming in, as well as at the whim of the market and its fluctuations.
While considered the safer of the two routes, organic growth still requires you to think creatively, be agile, enter different markets, and take risks in order to scale. You’re re-investing hard-earned money in order to win more business, and there’s no guarantee of success. On the other side of the coin, however, you could pursue a strategic acquisition. Say you were a company with an annual revenue of $5M and you acquired another company with an annual revenue of $5M.
Not only have you effectively doubled your size overnight, but you’ve also exposed yourself to an array of other advantages:
✓ Fast-tracked expansion into new markets
✓ Economies of scale
✓ Easier access to financing
✓ Acquiring skills, talent, or technology faster and at lower cost…and
✓ Improved valuation and exit options – companies with diversified revenue and customer channels are more attractive to other potential acquirers.
As you can see, an acquisition has the power of adding years of growth in a single transaction. And while it is widely understood by large corporations, who consistently use M&A and bolt on acquisitions to grow, there are many opportunities for SMEs and mid market businesses to use this strategy for growth.
How SMEs can Achieve Success in a Business Acquisition
There are 4 key stages in a business acquisition. So getting the right advice from the outset, as well as having a deal team on your side is critical.
1. Get clear on your strategy
If you are considering acquisition as part of your growth strategy, you should look beyond just revenue and EBITDA goals. As discussed above, an acquisition can open up many more opportunities for your business than just financial means. Be really clear on your objectives and longer term vision for your company.
2. Map the market
Being strategic means doing your homework on the market. Once you begin to understand who the key players across horizontal and vertical channels are and what synergies match with the future goals of your business, you’ll be in a better position to visualize where your business fits in and what its natural evolution would be.
3. Engage your targets
Once you have the right intel on the market and have assessed synergies, you are ready to engage with your acquisition prospects. It’s worth having an advisor or intermediary that can run this process - they’ll have the team, processes and expertise ready to go to review and evaluate what could be numerous targets (meaning you won’t have a second day job). Rather than do all the leg work yourself, you’ll get a shortlist of the ‘best fit’ and interested parties.
4. Negotiate the deal
The first step in this stage is the offer and acceptance, followed by due diligence. As this can be a challenging stage, it’s really important to speak to the right advisors. They will minimise the risks, navigate the confronting challenges of negotiation and help you move positively into the transition phase.
Acquisition is no longer reserved for big name players, but if you’re planning to use acquisition as a driver for your business’ growth, you need to be aware of the advantages (and disadvantages) you’ll encounter if you face this process alone, or under prepared. Running an SME usually means you’re operating at full capacity at the best of times. Don’t take your foot off the peddle, let us handle these critical steps so you can ensure your acquisition is a successful one.
Have you thought about an acquisition strategy to expedite your growth?
Speak to one of our advisers. We can help you determine areas of improvement within your company, as well as who in the market could be able to fill that gap.
Future-Proof your business
Forward thinkers plan strategically and develop strong growth strategies. If you are thinking about growth through acquisition, we can help you.
We help people at all stages of the acquisition process. Whether you are at an early stage and need to get clear on a strategy, you have a strategy and need to find acquisition targets or you’ve found a business and need help with the process.
We can help:
Feel free to get in touch with us, we’d love to start a conversation.
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