When it comes to business, getting larger isn’t always getting better or more profitable, but in many cases a smart acquisition is a good strategy for success. It all comes down to when, why, and how. When you are considering a business acquisition, ask yourself these questions in order to determine whether or not it will be a wise decision overall.
Will the acquisition build your business and your brand? How does this new business fall into the category of what you are already accomplishing or hope to accomplish? Acquiring a competitor will obviously extend your business’s reach and service area, as well as eliminate one source of competition, but what about acquiring a side business? Consider your brand before you start branching off. How will the new acquisition affect the way your current customers visualize your mission and your strengths? When acquiring it’s best to stick to complementary areas of service or creation. It makes sense for a crate manufacturer to acquire a sawmill. It makes less sense for them to acquire an ice cream parlor.
Will the competitor you acquire no longer be competing with your business? Be careful when you craft your acquisition agreements with competitors. There are three things to focus on with any non-compete restrictions you include in the contracts you create: geographic restrictions of the agreement, time restrictions of the agreement, and what exactly constitutes competition. Make sure that the business owner whose business you are buying can’t turn around and use it against you when he launches his next venture.
How will adding this business to your current one affect your overall operation costs? The business you are considering acquiring may be profitable, but will adding it introduce expensive redundancies to your bottom line? Will you be able to keep all of its staff? Will you be able to manage both old and new without overextending yourself or your current management?
How will the acquired business add to the profitability of your company as a whole? It’s one thing to consider how you can afford to acquire in the short term, in the sense of paying for it now, and the longer term, in the sense of affording it while you merge it into your company as a whole, but adding this business to your holdings must make everything you run more profitable in the long run, otherwise, what is the point? Again, bigger isn’t. Better and more profitable is. Figure out exactly how this new business will make everything better first, and then move on it.
What is it about this business that you’re not seeing when you look it over for the first time? Have a professional audit everything with a fine tooth comb, and then go over everything yourself to make certain they got it right. Don’t contain your focus to only the obvious money related things like their books, their sales numbers, and the value of their assets. Check out their workplace dynamics, the work ethic management promotes and rewards, and the relationships they’ve made with their customers, their employees, and their shareholders. You do not want to find out the company has a nasty lawsuit pending or hostile, angry investors after you’ve acquired it.
After you’ve carefully examined both your current business and the one that you’re considering, then you can decide if together they will be a good fit and merging them will benefit all parties in the long run. While it can be exciting to branch out or move in a new direction business-wise, anything involving large sums of money and greater responsibility should be done with eyes wide open and full confidence in the inevitability of its success.
Calder Capital customarily represents buyers seeking to make acquisitions. Please contact us if you are interested in purchasing a business.