Acquisition: One path to business growth
Monday, 17 June 2019
For businesses of any size, acquiring another company can offer opportunities for growth.
If you acquire a competitor, for instance, you'll instantly access their customers, products or services. If you acquire another business unrelated to your current business, you're able to quickly expand into another product, service or market. Some acquisitions offer an opportunity to take over prime real estate or hedge risks by operating in a number of industries or locations.
It's not surprising to hear that Disney acquired Hulu, that Amazon bought Whole Foods, or that Apple and Nike quietly acquire smaller companies to expand their reach. Large corporations frequently use acquisition as a growth strategy.
But acquisitions can be effective for companies of all sizes. For instance, View Newspaper Group, a small newspaper and printing company based in Michigan, has grown to 19 community newspapers through the acquisition of other small companies. Family-owned EG Group, based in the UK, has gradually expanded to more than 1,000 convenience stores through strategic acquisitions.
Deciding to acquire
For businesses that are already growing and experiencing success, acquisition can be an effective strategy to continue and expand that growth. If the goal is to expand into a new market, build your customer base quickly or expand into a new industry or line of business, acquisition may be a viable strategy. However, if the current business isn't thriving, acquiring a new business is unlikely to change its course.
Keep in mind that acquiring another business isn't just a financial investment; it will also require extensive time, strategy and energy to incorporate the new business's employees, inventory, brand, customers and products into your own. It's a strategy that can facilitate quick growth but requires extensive work to maintain.
If you've decided to make an acquisition, it may take some time to find the right acquisition target that is willing to sell. Don't be in a rush and always rely on trusted business advisors to ensure you're making a solid choice.
Making the acquisition
Not every acquisition is as large as the multi-billion dollar transactions that make headlines, but even small acquisitions may require funding in the five or six figures. Before moving forward with an acquisition, consult with trusted advisors to determine the value of the business you want to purchase.
Before negotiating, you'll need to determine your top offer and your plan for financing the purchase. Most businesses don't have the cash available on hand to purchase another business outright; instead, they may structure a financing agreement with the seller or with a business lender.
Learn more about how to finance an acquisition to grow your business by talking to your BBVA banker.
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