In the current talent environment, it can be difficult to grow a business. According to one recent NFIB jobs report, 60 percent of business owners reported hiring, but 88 percent couldn’t find qualified applicants for the job.
Instead of hiring the talent you need to fuel organic growth, acquisition can be another way to expand. A successful acquisition starts with a strong strategy and ends with a core team of relationship-builders.
Strategy. Take a hard look at why you want to grow. Bigger is not always better. Growth through acquisition is about finding synergies between two organizations. You want a 1+1=3 scenario.
Acquisition can offer all sorts of strategic advantages, from competitive market share, to new business opportunities, to cross-selling products/services and economies of scale. Consider your bottlenecks and look for a target that will help you shore up those weaknesses.
Borrowing capacity. Find out if your lender will support you in an acquisition and figure out how much you can afford. A lot of times we see companies target acquisitions that are roughly 20 percent to 30 percent the size of their business. A deal that size is big enough to move the needle without creating a potentially fatal amount of risk.
Specialists. Gather your circle of advisors before you find a company to acquire, not after. The M&A market is moving quickly, and you’ll miss out on deals if your team isn’t already on board.
At the very least, you’ll want a CPA and an M&A attorney. It can also be beneficial to hire an M&A advisory firm. The latter can help you identify acquisition targets that aren’t already on the open market. Which can save you hundreds of thousands if not millions of dollars in a strong seller market like we are currently in.
Connection. Once you have identified an opportunity, your next challenge is to build rapport with the seller. Your initial meetings are a time for listening and learning.
Don’t try to negotiate right away. Come in from a place of open mindedness and humility. No business is perfect, and you won’t do yourself any favors by telling a seller their darling baby is ugly. Ask your buy-side advisor for assistance in when to shift from relationship-building to negotiation; it’s a careful art and not one that every business executive has mastered.
Transition. Most buyers dedicate their money and top talent to doing the acquisition. But you need to think past the closing table. Make sure your integration team is ready to go as soon as the transaction closes.
Acquisition can be a fast and efficient path to growth. You’ll face a smaller risk and may have an easier time financing your growth strategy. Finding the right company to acquire takes effort, especially in today’s competitive market. Build your team now, so you’re ready when opportunity presents itself.