Successful companies commonly use mergers and acquisitions to combine forces and foster growth. If you’re thinking of planning your own business growth strategy by acquiring a target company, keep reading our blog to learn more.
Buying another business can provide many opportunities to grow your own business by helping you:
- Reach more clients
- Diversify into new markets (geographical expansion)
- Combine strengths
- Expand your services
- Gain talent, technology and intellectual property
At Butt Miller, we’ve been helping clients prepare for successful acquisitions for many years. Our merger and acquisition advisory services focus on strengthening companies’ financial position and putting them in the best place long before the legal work begins.
What is an acquisition?
A business acquisition is where one business buys another business as part of a larger growth strategy.
This can be done in a couple of ways:
- You could buy the trade and assets
- You could buy the entire company by buying out all of the shareholders
What does the acquisition process look like?
An acquisition is a huge step for growing businesses. It requires strategic planning and a careful approach.
1) Planning stage
You need to carefully plan for the acquisition to ensure it fits into your overall business strategy. Then, you will need to see what opportunities are available.
There are two ways to do this. You could set up a team and research the target companies that fit your profile, then look to approach them, or you could register with a business broker who specialises in selling companies in the market sector you have targeted.
Having settled on the target business, you will need to sign a confidentiality agreement to receive commercially sensitive information about the business you are looking to acquire.
You will also need to decide how you would like to acquire the business. As previously mentioned, there are two options: you could acquire the trade and assets, which is usually the less risky and most cost-effective option, or you could acquire the entire company by buying out all of the existing shareholders.
The key terms of the deal will need to be agreed upon, and they will be recorded in a legal document called the Heads of Terms.
2) Due diligence process
You will then need to undertake due diligence to ensure that the business’s finances and operations are in good health.
For example, they have well-established relationships with their clients, the key members of the team are well experienced and have been with the business for some time, there are no fundamental issues with their products or services, the assets exist at the stated value, and the financial numbers are robust.
3) Legal documents
The next step is to prepare the legal agreement that documents what you are buying at the agreed-upon terms. This will need to include restrictions and protection for both parties.
4) Integration
The final step is to implement a plan for a successful integration. This step is crucial for the long-term success of your new venture and requires careful planning. You need to consider the changes you will make, such as restructuring teams and management, and how this will contribute to financial growth.
How do acquisitions impact business growth?
If implemented properly, acquisitions are a faster way to grow a business than through organic business growth. With organic growth, you have to work on growing your business through marketing techniques and other strategies, whereas acquisitions can be used to acquire more clients, dip into new markets or geographical territories or combine strengths.
Buying an already-established business allows you to sell more services to newly acquired clients or expand your services.
Benefits of using acquisitions to promote business growth
The key benefit of acquisitions to promote business growth is the speed at which you can grow your business. While this is one of the primary benefits, there are many other reasons why you might consider an acquisition as part of your growth strategy.
Access to assets and resources
A business acquisition is a great way to access new talent, assets, intellectual property, and other resources that enable you to expand your operations. While these aspects of a business usually take time and involve significant costs, acquiring a business can reduce the overall cost and help you get there much faster.
Market expansions
Acquiring a new business is often a great way to move into new markets. For example, a company providing outsourced cleaning services to hotels could buy a commercial laundry business to expand its services to its existing client base.
You can also expand your business by acquiring a new sales channel. For example, you may have a traditional business driven by sales from retail premises. Acquiring a business with a fantastic e-sales system would increase your geographical reach for your existing products.
Acquiring a competitor’s business can allow you to increase your client reach and raise your prices, as you would be reducing the competition.
New customer base
If you want to reach more customers, then you should consider acquiring a business that operates in a similar sector to you but does not provide the same services or products. This would give you an opportunity to sell your services to a new client base.
Acquiring a new block of fees is also a way to develop a new customer base.
Cost synergies
Combining back-office systems, including finance, human resources, IT, research and development, can help your business save costs and improve efficiency. This usually happens by integrating two firms of a similar sector.
How can Butt Miller assist with your acquisition strategy?
Acquisitions are a smart and speedy strategy for achieving growth. At Butt Miller, we have worked with many clients, helping them acquire a new business or even sell their own business.
Our business acquisition services help you see your business’s full potential. We assess the financial opportunity and model several different outcomes so you can understand the risks and financial upside of a successful acquisition strategy.
We’ll help you understand the funding requirements, negotiate a good deal, conduct due diligence, and liaise with your solicitors to draft the legal agreement. Once you have an acquisition lined up, our team will then work with you to develop a successful integration plan.
For further support with your next corporate venture, please get in touch with Butt Miller today.
