When you want to grow through acquisition(s), it is important to set up an acquisition strategy. But what does such an acquisition strategy look like?
Practice shows that many business acquisitions stem from opportunism. A great opportunity suddenly comes along, before you know it you're at the negotiating table and six months later you've bought a business. You get sucked into a process without ever really thinking about what is best for your business. Let alone about possible alternatives. Maybe there were other businesses on the market that were even more interesting. Or maybe buying a business wasn't really a good idea.
Therefore, before you even think about a business acquisition, make sure your strategy is in place. You can develop that strategy yourself, or you can enlist the help of a business coach or strategy consultant. Most importantly, take the time to think about it seriously.
Strategic vision
The bottom line is: where do you want to be in five years? What goals are you pursuing? Will you achieve them through organic growth or (also) through business acquisitions? And if you are going to take over, will it be one or two targeted acquisitions or will you perhaps opt for a buy & build strategy? One speaks of buy & build when a company, based on a strategic vision, regularly and purposefully buys similar businesses with the aim of growing quickly and realizing synergy benefits.
The next question is then what criteria those businesses must meet. How much revenue or profit must they make? Or can they also be loss-making? In what sector or market should they operate? Where should they be located? At this stage, also examine your financing capacity. Have a talk with your bank. What does your balance sheet look like, how much can you borrow? You may already be able to get an acquisition facility, so that the money is already ready when you make an acquisition. Also ask yourself if you want to go with an investment company, with all its advantages and disadvantages.
Clear criteria
A well-formulated acquisition strategy serves several purposes. First, it saves time. Because you can test businesses against your criteria, you can quickly see if a business fits or not.
Suppose you have a solar panel business, you want to grow through buy & build and have concluded that only businesses with revenues of one million euros or more are interesting to you. If a business comes along with a 250,000 euro revenue, you can save yourself the trouble. It is simply not in line with your strategy and so you can say "no" at an early stage. Had you not had a strategy, you might have started the conversation only to come to the conclusion after a few weeks or months that it doesn't fit after all. A waste of your time.
The same goes for the acquisition price. If you know in advance that you can finance an acquisition up to 10 million euros and you are offered a professionally managed growth company with an EBITDA (earnings before interest, taxes, depreciation and amortization) of 5 million, then you don't even need to start the talks. So a strategy helps tremendously in delineating potentially interesting businesses. It helps to separate the wheat from the chaff.
Signal to the market
A clear delineation towards the market is also useful. If an acquisition advisor scours the market on your behalf for potentially interesting businesses ("targets" in jargon), he can search much more specifically. He knows your criteria and that obviously works much better than if he is sent out with a vague assignment. When he approaches businesses or other advisers, they will find that he is acting on behalf of an entrepreneur who goes through the process thoroughly and professionally.
'With a clear story towards the market you are much stronger, you are immediately seen as a serious discussion partner. Especially in a competitive market, you have an edge over parties who take the buying process less seriously. You're not a loose cannon," says M&A adviser Duncan Eduard of IRIS Corporate Finance.
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