Growing your business through acquisition: The pros and cons
Growing a business is normally done in one of two ways (or a combination of both). Organic growth - where the business naturally gets bigger thanks to winning more business. And growth through acquisition - where a company buys other companies to grow their offering, staff and customer base more quickly.
In this article, we'll be discussing the latter.
Growing your business through acquisition is not a new tactic, but it's one that needs a little exploration to fully understand if it's the right way for you to grow your own business.
Could you double your workforce, treble your turnover? Could you expand out of your home region through acquisitive growth and develop a national or international footprint? It's all possible.
The following are common reasons why business owners want to acquire other companies:
- To increase market share
By acquiring other businesses in your market, you'll pretty quickly increase your market share. This is a much faster process, and in many cases, much cheaper process than competing with that other company to try and take market share away from them. It also brings other advantages such as instant economies of scale.
- To add products and/or services that are complementary to the current portfolio
Acquiring another company will potentially bring the addition of new products and services that can be upsold to existing clients, (as well as new clients that you can sell your existing products to) thereby opening the door to more growth opportunities that may have been impossible without acquisition.
You may also find that you now have the staff, expertise and services that mean you can work with larger companies, or companies in other markets.
- To expand into markets
Entering into new markets can be a tricky proposition for most businesses. You're up against new competition with little to no proven record in the market, and potentially dealing with new audiences in different countries. Not to mention new legal, cultural and fiscal issues too.
This is why expansion into new markets is a very popular reason for acquiring businesses. It can drastically reduce the time and money you need to spend in order to properly compete with established companies in the markets you're targeting.
By acquiring the right business, you'll be able to get a solid foothold in your new target market.
The pros of growth through strategic acquisition:
Speed
Organic growth is fantastic, but it's often very slow. It takes a long time to build a business as you seek to prove yourself in your market, win more clients and business and hire more and more staff. Growth through acquisition or merger is generally much faster and - if done right - can yield a number of other almost instant benefits that we have already highlighted above.
Cost
Growth thought acquisition is often cheaper than growing your business via expanded marketing and sales efforts. In addition, you see the benefits immediately whereas your new sales and marketing strategies could take a long time to bear fruit (and therefore cost as much or more).
Strategic
Acquisition can really boost your company's market share, brand reach, audience, circles of influence, and supply chain while also removing or surpassing the biggest competitors in your market - either by acquiring them directly or by acquiring smaller competitors.
The cons of growth through acquisition
Speed
Yep, speed is both a pro and a con. Because of the speed of acquisitions, changes to your company will happen very quickly. And you'll have to be ready to deal with them or you'll face complications that may slow your business down for a period of time.
Employees/Management
Reorgansing your workforce and management team after acquisition can be tricky to say the least. Some people may feel that they've been forced into a change when they were happy working for the previous company. Some may see friends leaving, and some may face changes in their overall role and day to day. You and your management team will have to stay on top of this and create an environment in which your new staff will want to work and thrive.
Culture
No two companies are the same, and acquiring another company, even one that was also operating in the same market as yours, may lead to a clash of cultures. Both sets of employees from both businesses will be used to doing things in a certain way and it will be your job, and that of your management team, to ensure that everyone remaining with the company is able to work efficiently and in a stress-free environment as quickly as possible.
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