Acquisition is a great tool for growth. But before embarking on an acquisition journey, it is important to ask,” What outcome do you want to achieve from M&A that you would not realize otherwise?
Each company’s situation is different, and the reason to acquire is different. Here are the top 5 reasons a company decides to acquire:
- Expand customer base – It takes time to penetrate a market where your firm does not have much experience. Putting all your salespeople to work may not be enough to obtain a certain customer base. Acquiring a company that is serving your desired customer base can easily increase your market share. Such acquisitions also give access to client lists and the relationships they have built.
- Leverage technologies – Acquisition can be one of the fastest and efficient ways to add a technology that you are lacking. Often, it can take a lot of time & money to develop a new technology. It may be more cost-effective to buy a firm that owns that technology. Acquisition is a great step towards innovation in such a situation.
- Get defensive- One of the best ways to fend off competition is by purchasing the competitor itself. Another option is to buy a company that your competitor could acquire. Acquiring your competition will put you in a position to reap significant rewards.
- Add talent– Acquiring a firm with a great sales or development team will add fresh human resources to your business. Acquiring for this purpose can be seen as a “group hire.” It can be a big win if the business you choose to buy has a team and system that can complement your own.
- Maximizing profit- The ultimate goal of any business is to increase profits. Organic growth has its limits and it can take a lot of time to reach a target growth number. Acquisition can provide rapid and sustainable growth. Acquiring a healthy, cash-flowing company can be a powerful route to increased profits.
Whatever reason you determine that fits your company’s goals, it is best to only choose one strategic rationale for each acquisition. If you pursue multiple rationales at the same time, you risk losing focus. Concentrating on one reason to buy will keep you on track so you can achieve your growth goals.