What are the keys to unlocking growth through strategic acquisitions?
Paul Stout, corporate finance partner at PKF Francis Clark in Southampton, explores the risks and potential rewards of growing by acquiring a competitor.
Whether driven by increasing market share, diversification or staying at the forefront of innovation, strategic acquisitions can be an enticing route to profitable growth for ambitious businesses.
However, it’s essential to weigh up some important factors when contemplating an approach to a potential target before taking the plunge.
When helping clients to identify and pursue acquisition opportunities, we often find they are motivated by a variety of common anticipated benefits:
Market share:
By acquiring competitors or complementary businesses, particularly those with a loyal customer base, companies can consolidate market share, gaining a competitive edge and the ability to negotiate better deals with suppliers.
Synergies and efficiency:
Acquisitions can deliver synergies resulting in improved operational efficiency, such as streamlining processes and reducing duplicate functions. By combining their strengths, companies can achieve cost savings and improved productivity.
Innovation acceleration:
By acquiring innovative startups or companies with cutting-edge technology, established firms can accelerate product development. An acquisition can bring an influx of expertise and valuable intellectual property.
Diversification:
Acquiring a company in an adjacent sector can be a shortcut to expanding into new markets and diversifying your product or service offering.
Risk mitigation:
Strategic acquisitions can be a proactive way to guard against market disruptions or economic downturns by building a more resilient and diversified portfolio.
Factors to consider
While the potential benefits are clear, it’s vital to carefully assess strategic investment opportunities before making a move. Key factors we explore when helping companies to evaluate potential deals include:
Alignment with business strategy:
The acquiring company should have a clear understanding of how the acquisition fits into its long-term goals and contributes to its overall growth strategy. A mismatch here could lead to integration challenges, culture clashes and failure to realise expected synergies.
Financial and tax due diligence:
Before proceeding with a deal, it’s essential to gain a full picture of the financial health and liabilities of the target company, any potential risks and the tax implications of the proposed transaction.
Regulatory and legal issues:
Depending on your sector, there are likely to be legal or regulatory considerations which could lead to delays and increased costs or even scupper the deal if not identified and addressed early on.
Cultural fit:
The business case for a deal might be compelling, but cultural fit (or the lack of it) can make or break an acquisition. A smooth integration of management teams and employees can be difficult to achieve if your culture is alien to that of the target business.
In summary, while a strategic acquisition could be a game-changer, to ensure it delivers the anticipated benefits it’s crucial to evaluate potential opportunities thoroughly – and this is where expert advice is invaluable.
By taking the time to get to know our clients and understand their objectives, we are able to help business owners and leaders make informed decisions in line with their long-term strategic goals.
For more information
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