9 Reasons Why You Should Consider Growing Your Business Through Acquisition

by 2nd of January, 2023

9 Reasons Why You Should Consider Growing Your Business Through Acquisition

You’re in a dynamic, fast-growing industry, but achieving organic growth solely through reinvesting free cash flow, may not be the best strategy. Growing your business through acquisition will allow your business to grow faster, otherwise your vision may be captured by other, better-funded competitors or new entrants.

An acquisition strategy should be clear and well thought out in advance, in order to make sure you understand what you are trying to achieve for your business, what kind of targets you are considering, what size business you are looking to buy, whether you are looking for businesses in distress and if so, are you able to fix them?

Perhaps you haven’t felt that you have had the finances to consider acquisition previously, but there are many ways to structure a deal to ensure finances don’t necessarily get in the way.

Here are 9 reasons why you should consider growing your business through acquisition

1. Grow your market share

Organic growth is all well and good, but it can potentially take a long period of time and it can never be guaranteed that what you spend, you will get back. However, growth through acquisition will immediately make your business a bigger fish in the same size pond.

2. Increase project pitching ceilings

If you are a service company or agency pitching for a new business, you may have hit a ceiling whereby either current clients or new larger clients will exclude or restrict your opportunity size, as your current turnover is below a certain threshold. This could be a great reason to buy a smaller competitor so that you are above the limits that a client may have, allowing you to then pitch for a larger opportunity.

3. Improve profit margins

Many times, small or new businesses have much higher profit margins as they don’t carry the legacy staff or systems that create baggage and overhead. By acquiring a small or new business, you will be able to lift the overall profit margin of the business, or increase margins by cutting backroom costs like accounting, or other administrative costs.

4. Remove a competitor

There’s nothing Machiavellian about taking a competitor out in business, it’s just business after all! Having a competitor in the same market can push prices and value down, create buyer confusion or could push marketing budgets up. By buying out a competitor you can confront these problems head on and gain lots of other benefits at the same time.

5. Create new value

The Medicis were an Italian family that grew to huge amounts of influence during the renaissance. They had started out in textiles but ended up producing popes and royalty from their stock. How did they do this? They brought new ideas to old and established ways of doing things by entering industries that they had no experience in. The juxtaposition of two completely different ways of doing things or experience being brought together will create new value, new ideas and new opportunities.

6. Allow yourself to step back from the business

You may have run your business for many years and would like to step back and take a more strategic role, rather than an owner/managerial role. By acquiring a similar company to your own, you will have access to a management team with the same skillset as you. Most likely the acquired management team will be more than happy to in charge of the bigger entity, allowing you to take a step back, either completely or in a Chairman/board type role.

7. Expand into a new vertical

Rather than hiring employees and building a new division, it can be quicker and easier to buy your way into an emerging or established industry that you are currently not part of. Again, building from scratch is fraught with trial and error, while buying a viable business and merging it into your operation can give you instant access to new markets.

8. Access to a differently skilled workforce

Imagine you are a computer maker, and you want to break into the car industry (as if that would ever happen). You could either advertise for car industry professionals and hope that you find employees suitable, or you could buy a startup that has already hired the best of the best in the industry. Buy the startup, make the cars and put your computers in them!

9. Gain new technology

There may be pieces of software, services or products that you are paying through the nose for. How about acquire a company that already does or has that? Now you’re paying yourself for the service or product.

As a client of LINK Business Brokers, you can rely on our wealth of experience when negotiations start with companies you are looking to acquire. Your industry specialised business broker can approach and introduce you to all sorts of opportunities, that might have been outside of what you were considering. These opportunities may feel like an opportunity missed if you don’t have someone on your team to analyse them.

Contact LINK Business Brokers Brisbane today for a completely confidential conversation on business acquisitions.

Tags: acquisition growth market share expand