Question: If your business is not worth enough today, should you grow through acquisition?
Answer:
If the value of your company is insufficient to generate your definition of wealth and freedom, then you must increase it. You have two options, you can let your company grow organically, or you can graft on new growth through the process of acquiring other companies. Organic growth takes time. Acquisition allows you to grow as quickly as you would like, but be sure to do your “Due Diligence.”
Your acquisition growth will outpace organic growth if you properly analyze all of your potential acquisition opportunities by doing your due diligence and structuring your financing intelligently while negotiating a fair purchase price with reasonable terms and conditions.
Here are eight common reasons for choosing an acquisition growth strategy:
1. Enhance the diversification of products and services;
2. Reduce competition;
3. Increase market share;
4. Achieve economies of scale;
5. Expand geographically;
6. Achieve strategic alliances;
7. Achieve greater leverage with vendors;
8. Add new product or service lines.
When deciding to grow through acquisition, resist the temptation to acquire a “turnaround company.” Turnaround companies are companies in serious trouble which results in cheaper acquisitions. Instead, grow through acquisition by finding a good company with a strong history of performance that has many of the “Value Drivers.” Acquiring good companies cost more because quality costs but the road to success will be more certain.
Value Drivers are characteristics that influence a buyer’s decision about how much to pay for a company. Value Drivers common to all industries include:
- A stable, motivated management team;
- Good and improving cash flow;
- Operating systems that will enhance the sustainability of cash flows;
- A solid, diversified customer base;
- Effective financial controls;
- A realistic growth strategy; and
- Facility appearance consistent with asking price.
If you would like the complete answer, please reach out to MB Law at info@mb-law.law to request your complimentary copy of “Deciding To Sell Your Business, The Key To Wealth And Freedom,” that has over 50 detailed questions and answers.
*This information is for general purposes only and is not intended to constitute any specific legal advice of any type.