5 Reasons Why An Acquisition May Make Sense
Are you looking for business growth? But have been frustrated by the reality of making it happen?
Here’s 5 reasons why you might consider an alternative to organic business growth: growing your business by acquisition.
- An attractive ROI
Depending on many factors, it is likely that an appropriately sized SME acquisition target will be valued at a multiple of between two and six times its EBIT. Taking a simple inversion of those multiples suggests a crude return on your investment of 17% to 50%. In these days of extremely low-interest rates, where else can you find such a yield?
- Industry Knowledge
Most likely you will have had many years in your industry sector and know many of the likely acquisition prospects. You will be aware of the relative strengths and weaknesses of those prospects and probably know the position of the owner(s). Using this knowledge will go a long way to mitigating risk and maximising opportunity. And, you’ll have the benefit of a “due diligence” exercise during the acquisition process.
- Synergy Benefits
Synergy is commonly defined as 1 + 1 = 3. This means the whole is greater than the sum of the parts! Typical benefits that may arise from a combination of two businesses include;
- eliminating duplicated facilities and processes,
- optimising distribution channels and
- offering new products to a wider customer group. And all these synergy benefits increase the RoI of the acquisition!
- Access to Finance
Organic growth requires funding. Funding for more production, wider distribution, more inventory, more receivables and so on. From a funders point of view, fronting up with finance for organic growth requires confidence in crystal ball forecasting. Will greater production and distribution capability generate more sales? Compare this to funding an acquisition. An acquisition where the target company has provided 5 years of historical financial information, has an existing and proven infrastructure and has been subject to a thorough due diligence process? A process probably involving firms of reputable accountants, lawyers or consultants. Which do you think would be preferable to a financier?
- Access to Staff
Today’s often-repeated lament: “I can’t find qualified, experienced staff anywhere“! But, if you acquire another business, you will get access to a pool of experienced talent. In turn, this will reduce the need for the frustrating and expensive recruitment processes required by organic growth.
If this all makes sense and you’re looking for your business to grow one question remains: are you and your business ready and prepared for growth by acquisition?
Find out. Take our FREE Business Diagnostic.