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.
BTS News
Manufacturer Sold and New Owner Expands It
BTS served as advisor in the sale of PlasTech Machining Fabrication, Inc. to DelCam Holdings in 2020...the company has grown substantially, doubling employment and adding capacity to boost future prod
How M&A Will Respond to Next Recession
The takeaway for business owners: Get back to basics. Don’t worry about hyper growth. De-risk your company as much as possible.
Perception vs Reality with Small Businesses
Sometimes the economic picture on the news seems inconsistent with what is happening for many business owners. Nearly every owner we speak to is out straight.
NH-Based Techinical Manufacturing Company Sold
Hampshire Controls has a bright future with new ownership. The company was recently sold by Diane Rush, owner and president, to Pillar Imaging and its leader Dr. Michael Pilon.
Be Ready When You Are Ready
When a business owner says it’s time to sell, I ask, “How fast do you want to be out?” The answer I hear most is, “Yesterday.” But sellers underestimate how long the process takes.
Looking at a Sale Through the Right Lens
Sometimes our vision about the future is blurry because we aren’t considering the whole picture but only parts of it.
5 Deal Points from the Trenches
Today I work with clients of Business Transition Strategies who are implementing Growth Through Acquisition strategies. Here are a few observations from working on a wide variety of projects.
Tax Changes Could Hurt Net Proceeds
Changes proposed to the capital gains tax suggest they may need to get 30% more in a transaction in the future just to net the same value they would get today.
Good Ideas From Shark Tank Deal
One of my colleagues in Cornerstone Alliance was front and center in a recent Shark Tank exercise. A business that had been sold was put in front of four potential buyer groups.
Buyer Trends in Lower Mid-Market
Other businesses are a significant market for companies being sold within the lower mid-market.
Case Studies
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.