How to achieve growth through business acquisitions

For some companies, especially those operating in congested markets, business acquisitions may be the most achievable way to scale-up. For others, strategic acquisitions could be an effective way to bolster your market position against competitors or elevate your brand, while unlocking value in your business, ahead of a future exit event. But it’s crucial to have a clear acquisition strategy and integration plan in place first, as well as the right backers on board.

What does the acquisition process look like exactly, and what should business owners and management teams consider before pursuing this type of growth strategy? Read on to find out.

What is a business acquisition?

A business acquisition is when one company purchases the majority of another company’s shares or assets. In doing so, the acquiring company buys and gains control of the acquired business — unlike a merger, where two companies undergo a process of consolidation, to form a new business or new legal entity, with shared ownership.

Post-deal, acquired businesses might operate as subsidiaries or be fully integrated into the acquiring business (often the larger company of the two), or they may be dissolved.

Some common types of acquisition include horizontal acquisitions (buying an existing company in your industry), vertical acquisitions (vertical integration of the supply chain, like acquiring one of your suppliers or distributors), and conglomerate acquisitions (buying companies in different industries, often with the aim of diversification).

In private equity, the term ‘acquisition’ may also refer to buyouts — where a private equity firm acquires more than 50% of a company’s shares, either through an equity deal or funded by debt (a leveraged buyout).

When the company is acquired by its existing management team, this is called a management buyout (MBO). Or in instances where the target business is resisting the deal, the acquisition may be referred to as a takeover.

What steps are involved in the business acquisition process?

Mergers and acquisitions (M&A) can take many forms, so the processes involved in M&A transactions — and the challenges faced — will vary. But for startups or SMEs looking to accelerate their growth through business acquisition, some key steps to consider include:

• Strategic planning and decision making
• Identifying and valuing acquisition targets
• Raising capital to acquire potential targets
• Carrying out a thorough due diligence process with target firms, to avoid unforeseen liabilities or issues
• Obtaining regulatory approval (if required)
• Negotiating and closing the deal with the target company
• Communicating changes with employees, customers, and other key stakeholders
• Integrating the acquired business into your own (if part of your roadmap)

Let’s explore some of these steps in more detail below.

Developing your business acquisition strategy

When it comes to acquisitions, while having an appetite for growth is important, you’ll be much more likely to achieve this growth with a robust strategy in place.

Business acquisitions are often driven by strategic goals, such as:

• Expanding your market share
• Entering new markets or geographies
• Reducing or removing competition
• Accessing new technologies, intellectual property or talent
• Expanding your product line
• Achieving cost synergies (through supply chain or operational efficiencies, for instance)

From the beginning, you’ll want to be very clear on your business plan and objectives. This will help you pinpoint the type of company you want to target (considering things like size, sector, geography, culture, and regulatory hurdles), as well as the budget and resources you’ll need to carry out acquisitions. And you should ensure that key stakeholders and advisors are aligned on this.

During the planning process, emphasis should be placed on your company’s value proposition — including your core strengths, customer base, and revenue streams — and where you sit within the competitive landscape. What trends are you seeing in the market? Where could a new company add strategic value? And how might you integrate it into your existing business, to ensure success?

You should also ensure you’re prepared to manage a period of rapid growth – from both a personnel and process perspective, as well as a financial one.

Raising finance for business acquisitions

Once you have a strategy in place, and a clear direction of travel, you’ll want to consider financing — as you may need to raise external capital, to fund your acquisitive growth strategy.

As with any fundraise, you should identify suitable sources of funding for your business. You should also determine how much funding’s required to support your growth plans; for business acquisitions, this should take into account both purchase price and any advisor fees, as well as integration costs.

Whether you decide to raise debt or equity funding (or a combination of the two), you’ll want to prepare a strong business plan, to attract potential lenders or investors. When presenting your case for acquisitive growth, make sure you can articulate your company’s USP, the size of market opportunity, and how you plan to scale-up effectively.

Access to management information and business data is also vital in proving the case for funding — as is the ability to refine your business and set KPIs to help drive business growth. How do you plan to measure the strategic impact of acquisitions?

Timing is also a major consideration for investors. Is your business at that ‘step change’ moment? Has it achieved sufficient scale, and is there sufficient width and depth for your management team to accelerate growth?

At the core of raising business finance is also building good relationships with potential investors. Make sure they understand your company culture and want to safeguard it. At the same time, consider their approach to investment and their strategic aims — and whether these align with your own. Trust and alignment are both key.

Parts of this piece were adapted from our articles for Growth Business and Business Matters.

The information contained in this article is for general information and use. It does not constitute any form of advice and is not intended to be relied upon in making any investment decision. Independent advice should always be sought as to whether a particular transaction is suitable having regard to your personal and financial circumstances.