Business Acquisition Strategy for Tripling the Size of Your Company
After the economic crash of 2008, many small and medium sized companies saw a major decline in sales due to the loss of customers, reduced purchases from customers, and either the elimination and/or reduction of their credit lines from banks which prevented inventory purchases and investments in marketing venues. In the 4 year period since, many companies have tried to recover by increasing sales in the traditional fashion of simply procuring more customers.
Others have tried to increase purchases from their existing client base by selling them other items or simply by hoping that their customers return to their pre-2008 buying habits. The problem with organic growth in this manner is that it is a slow way to growth and it is hard to get ahead, especially if the business lost a lot of income and profits when the economy declined. If you want to grow at an accelerated pace, you will have to execute a different strategy.
A basic strategy for accelerated growth is to buy another business in your industry. This is a way to increase sales by 30%, 70% or even 300% if you can execute a lucrative deal. The benefits of buying a business are endless. First you can dramatically increases sales and profits by inheriting the target’s current customer base. Second, you can get access to the target’s list of past customers and sell to them upon taking over the business you buy. Third, you can increase your buying power and get access to additional supplier relationships. Finally, you can get access to personnel that can be of great assistance to your overall business. Good people are hard to find and a business acquisition can immediately improve your team if the deal comes with competent employees.
The first type of acquisition is what we call “Fold in Transactions;” these are acquisitions of companiesthat are in distress or are marginally profitable. Typically, you can buy these companies with little to no money down if you have the cash flow and infrastructure to support the target’s book of business. Oftentimes, the owners of the target will be willing to stay on as a salesperson and help you retain the book of business you purchased.
Most of the owners of these companies do not want to be owners anymore and are limited in their ability, although they can be an asset for an owner with competent management skills. The reason why these acquisitions are labeled “Fold in Transactions” is because when one buys this type of business he or she usually integrates the business into their current facility, fires most of the employees, and shuts down the target’s operations.
The second type of acquisition is labeled a “Stand Alone” acquisition. This is an acquisition of a company that is profitable and is oftentimes either the same size or larger than its acquirer. Normally, the acquirer will have to raise money from a 3rd party lender or investor in order to complete a transaction.
Since the acquisition itself will normally increase the size of the acquirer dramatically, raising money for a deal without having to place out of pocket resources is certainly a possibility. Hence, whether one consummates a “Fold-in Transaction,” or “Stand Alone” acquisition, a company can leverage their way into a transaction with little to no money down.
So if theoretically a small or medium size business can grow with business acquisitions and little to no out of pocket costs, why doesn’t every business achieve growth in this manner. The rub is that you need to know what you are doing. First of all, most owners do not fully understand the opportunities that are available with regard to making acquisitions. Most owners believe that one needs a lot of monetary resources to make a deal which is not true if you know how to make deals.
Further, making deals work post acquisition requires a certain level of savvy and experience most business owners do not possess. It is important to know if an owner wants to go the “business acquisition” route, he or she should do so with their eyes open and employ a team of advisers, which includes an attorney, accountant, Merger & Acquisitions Consultant, and Banker.
The experienced team at BizGro Partners offers business acquisition solutions to help companies grow. If you want to find out more information about consummating business acquisitions,contact us online or call 201-496-6931.