Are you considering purchasing another company? Perhaps you’ve wondered if a merger might benefit your business. If your goal is to grow your business, you’re looking in the right direction. Mergers & acquisitions are effective at accelerating business growth.
Maybe you’ve got a company in mind that has $12 million in sales with a $1.3 million profit, almost no physical assets, and less than $400,000 cash. The growth rate of this company has been consistently around 3.7%, and the business owner is asking $18 million for the sale.
Right away, this deal looks like something you’d walk away from, but that’s only the financial perspective. There are other factors that can make this deal extremely appealing and beneficial.
When considering an acquisition, there are five main strategic factors to consider in addition to financials. In this article, we’ll outline these factors and explore the implications of each because, under the right circumstances, they can reveal irresistible value from a more expensive deal.
Factor 1: Technology impact
Does your target company own or produce a technology that your company will find beneficial? For example, your company might fall short of delivering the best possible customer service experience because you’re missing a certain piece of software that will up your game. If your target company owns this proprietary software, then acquiring it can help you create a better customer experience and beat your competition.
Consider how Meta acquired virtual reality (VR) companies Oculus and Within Unlimited. The company started out with Facebook, which is a simple social media platform. Now, the company plans to develop a virtual reality world where people hang out with each other and interact virtually. This opens up worlds of possibility for Meta and its customers.
Factor 2: Market impact
How will your merger impact market behaviors? Will a decrease in competitors reduce price competition or increase margins for the competitors remaining in the market?
Will customers receive a higher value of services and products, better customer service, and better quality products overall?
If your target company will have a positive and beneficial market impact, your acquisition will help you achieve genuine success in your market.
Factor 3: Distribution impact
Will your target company help you penetrate a new distribution channel? Or perhaps it will help you get more of what you need from existing channels.
For example, if you acquire a well-known brand in the pet food industry, you’ll have more leverage with the big chain pet supply stores.
Factor 4: Supplier impact
If your acquisition will give you control over a large portion of your market, you might have stronger bargaining power with your suppliers. If that’s the case, you can get what you need more easily, even if it’s custom. For example, you can ask manufacturers to alter product features to better match market demand and/or move forward with customer feedback on items you don’t own the rights to produce.
If you can dominate your market, you’ll be able to sell to larger customers, like warehouses or discount stores, retail outlets, etc.
Factor 5: Human resource impact
It’s possible, and even likely, that an acquisition will help you where human resources are concerned. If you’re experiencing a shortage of workers, you’ll have plenty of staff on hand. However, the real value will come from acquiring a company with a team of skilled, trained experts.
If your company will benefit from an experienced team of experts, and you don’t have the time or resources to train your own team, this will prove valuable. This is especially true if their expertise is in an area that will improve customer satisfaction. For example, if you’re a marketing company acquiring an organization with a team of PPC experts, your clients will see a major benefit when that team begins working on their paid ad campaigns.
Consider these factors before an acquisition
Now you know several ways acquiring a business can increase your value in addition to increasing your sales. When you’re considering a merger or acquisition, take all of these strategic factors into account to be sure you don’t walk away from a deal that can generously increase the value of your bottom line.
