Neither good nor bad, acquisitions are most successfully carried out when there are specific, well-articulated value creation ideas in order.
The large variety of acquisition types makes choosing the right strategy very important with the sole focus being on their ability to create value, which boils down these most successful archetypes:
- Improving the performance of the target company – You buy a company and radically reduce costs to improve margins and cash flows.
- Removing excess capacity from an industry – Often benefits other competitors and the seller’s shareholders in lieu of buyers.
- Creating market access for products – Small companies often have issues reaching the entire potential market for their products. Working together with larger companies can accelerate these sales in previously unavailable markets.
- Acquiring skills or technologies more quickly or at a lower cost than they could be built in-house – This allows companies to acquire technology more quickly than inside development could provide, avoid royalty payments on patents, and reduce competition.
- Exploiting a business’s industry-specific scalability – Economies of scale can be important sources of value in acquisitions when the unit of incremental capacity is large or when a larger company buys a subscale company. They must be large enough to justify an acquisition though.
- Picking winners early and helping them develop their businesses – Invest before your competitors beat you to it, expect to fail because of the risk you take in your early investment, and have the patience it takes to nurture your new acquisition to greater value.
The amount of research and strategy expended in the process can make a world of difference between a successful acquisition and one that fails. With the many questions and goals to consider, it’s crucial to enlist knowledgeable and experienced professionals to advise and guide you through the process.
When you don’t employ an in-house CFO, MSM Advisors is here to offer expert advice through an experienced Virtual CFO.
If you are in need of a financial advisor, request a consultation with one of our professionals at https://msmadvisors.net/request-your-consultation/.