In the current labor environment, it can be difficult to grow a business. According to one recent National Federation of Independent Business (NFIB) jobs report, 60% of business owners reported hiring, but 88% said they couldn't find qualified applicants for the job.
Instead of hiring the talent you need to fuel organic growth, growth through 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. Many times we see companies target acquisitions that are roughly 20% to 30% the size of their business. A deal that size is big enough to move the needle without creating a potential fatal risk. It is never too early to have your banker on board with your growth plans.
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 and able to move quickly when the right opportunity is identified. In addition to your banker, an attorney with experience specific to business and financial transactions is important. The greatest asset may be the human resources and managers you currently have on staff. If possible, include them in the growth planning.
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. Determine what the seller wants in a transaction. Is this a retirement transaction? Is the seller more interested in the monetary value of a transaction or does he want to protect his legacy after the sale? These things impact the results of negotiations.
Don't try to negotiate right away. Position yourself 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 in order to be successful, you must necessarily need to think past the closing table. Make sure your integration team is ready to go as soon as the transaction closes. You need to consider all the details of post close operations. Cash Management, Payroll and Benefits, Licenses and Permits, Customer Files and Pricing, are all in need of significant pre-close and transition planning.
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.
"The entire process went smoothly and professionally. The BTS team kept me fully informed at every step. They worked hard and were effective in bringing the deal home."
"Skip and I continue to be grateful for all you have done to make the sale of Pure Flow come to fruition."
"BTS’s level of expertise in the process and close attention to detail enabled us to successfully navigate the deal."
"These types of transactions are often long and complicated and I doubt it could have been successfully completed without your close ongoing involvement."
"The outside objective point of view that you have brought us has been invaluable as we prepare for the rapid growth."
"John then found the right buyer and coordinated a seamless transition—he doesn’t miss a single detail."
"John immediately identified our strengths and experiences and discussed a business that ultimately was more in line with our goals."
"The BTS team came in, evaluated everything in a professional and thankfully non-threatening manner."
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An M&A program need not be limited in the search to the complete acquisition of a company.
Precision Machining Company
Initially, liquidation was a serious consideration. It would offer a quick exit but would hurt loyal employees and disrupt the customers who had come to rely on its quality production.
Green Product Company
Our client owners could dig in for the long haul…However, this would take five years or more. Owners simply lacked the horsepower to do it.
Water Purification Company and Young Buyers
Owners decided they wanted to retire. They also wanted to be fair to the staff who had been loyal to them. Could the company be sold, the staff retained and the facility remain in use?
Magnetics Company with High Profile Customers
(T)he manufacturer would need to focus on growing EBITDA to capture interest from major strategic buyers and achieve a higher multiple of earnings.