Growing Through Acquisition - Is it a Buyer's Market?
Jul 24, 2012
You have an established, growing business and are wondering what comes next. How can you leverage success and keep growing and building business value? For most prospective buyers, doing an acquisition while the economy still seems so uncertain appears to represent a high risk. Some potential buyers may be building cash balances as a hedge against hard times, rather than a war chest for acquisition – just in case the confused outlook remains for the foreseeable future.
But could right now be the perfect time to grow through acquisition? Well, it could be if:
- Your company is stable financially and has developed clarity around your financial and personal strategy
- Your strategy is to strengthen the core business by acquiring processes, technology or staff; to create a new complementary division that helps you cross-sell existing business; or to quickly have another local office for geographic expansion.
While the competition is focused on maintenance of their existing customer base, an acquisition could be a very positive solution to growing a successful business. Expansion in both size and capabilities can make a significant new contribution to the P&L and strengthen the company’s position after the Great Recession.
On the sale side, it should be no secret that there are many sellers coming in to the market. A generational confluence of aging boomer owners looking for an Exit and a general acceptance of the new economic reality in terms of valuation, suggest a wave of companies for sale will put downward pressure on multiples and deal terms. Many owners are tired of business management, or they may have specific goals in mind: to shed back office management, gain experienced staff, even have access to additional growth capital. Or they may be very concerned about securing their business value and taking some equity out to protect their financial future.
Many business owners having weathered the worst of the recession may have realized from this downturn that being an entrepreneur is not always fun and games. The risks – both financial and personal have become more evident, and they may have concluded that managing all aspects of a business may not be for them. Some will seek full time employment, while many will prefer to focus on sales activities, while a partner handles the back office functions for them.
The best positioned buyer firm will have a strategic acquisition plan. Such a plan consistently highlights the growth of profitability, cash flow and business value. Integration and management of an investment is obviously key to success. The use of key metrics and analysis is very important to modeling the pre and post – purchase effects of an acquisition, since many acquisitions fail to achieve their goals because the financial management and oversight of the integration is weak.
While many selling firms may see economic uncertainty on the horizon, this period could spell major opportunity for those properly positioned on the buying side.
Contact David Kirkup – Partner B2B CFO to lear how to take your company to the enxt level of success, using our proven six step process – The Game Plan.