The Benefits of “Growth through Acquisition”

January 10, 2017

Buying a competitor or a synergistic operation is an accepted growth tactic for larger sophisticated businesses. But “Mergers & Acquisitions” don’t have to be the exclusive strategy for middle market or large public companies. Many businesses can also benefit from acquisitions. Business owners will often be reluctant to pay goodwill for another business, but there are many reasons why it might make sense:

1. Faster Growth. Growing your business takes time, patience and resources. Acquiring a competitor could substantially increase or even double the size of your business overnight.
2. New Markets. Before looking to enter a new market, ask yourself if buying out an established business makes more sense. Not only do you receive the benefit of their client base, but you are simultaneously removing a competitor.
3. Employees. In a strong and growing economy finding valuable employees takes time, training and sometimes a bit of luck. Acquiring another business also means you get their employee pool, which may add value to your whole operation.
4. Cost. From a risk standpoint, buying an established, proven business can be much less risky than a new start-up or new location in another market.
5. ROI. Profitable, established businesses produce predictable cash-flows. Buying an existing cash-flow could offer a much better return than other investment opportunities. And with the cost of borrowing at a historic low, you might not need to commit much cash to an acquisition.
6. New Products or Services. A competitor or synergistic business could bring new products, suppliers or services to your entire organization.
7. Economies of Scale. Buying another company may create additional savings by eliminating redundancies: accounting, marketing and management functions can be consolidated and streamlined for multiple operations.
8. Size can Matter. By acquiring and growing your business you gain intangible benefits of being a larger operation: better borrowing costs, better negotiating power and pricing and stronger appeal for potential new hires. Vendors, consumers and employees gravitate towards established brands, proven formulas and market leaders for stability and confidence.

Changing technology, fickle consumer tastes and unpredictable economic environments are disrupting many industries. For large or small businesses, growth may be required to remain competitive. If so, the best strategy might be through the acquisition of a similar or synergistic business.