Acquisition can be an exciting tool for growing your company, but before pursuing a deal, it is important to ask, “What outcome do you hope to achieve from M&A that you would not realize otherwise?” There are a variety of reasons to acquire and although each company’s situation is different, most deals fall under one of these common reasons:
- Top Line Growth – This is the most common reason for acquisition, often — but not always — in response to a declining market, or a slippage in market share.
- Follow Customers – Here, you are expanding on your existing customer base to achieve greater product breadth or deeper market reach
- Leverage Technologies – Acquisition can be fastest and most-effective way to add significant technologies you are lacking.
- Consolidation – Purchasing a direct competitor can provide economies of scale and cost reduction, but may not change your overall strategic position.
- Stabilize Financials – Here, you may want to leverage your balance sheet or incorporate a higher margin business.
- Expand Customer Base – You may acquire a company to simply buy a customer portfolio, or to accelerate your expansion into new markets
- Expand Talent – Sometimes an acquisition can be attractive because of the people it brings with it, such as technology innovators, or an exceptional sales team, or seasoned executives
- Defensive Positioning – You may acquire a company simply to prevent a competitor from owning it, so that you can protect your current and future market position.
Whatever reason you determine 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.