We would like to thank Tim Malott, Managing Partner of Shoreline Partners, for his expert insight on how to grow businesses through acquisitions. Throughout his near three decade career at Shoreline Partners, Malott successfully led:
- Sales
- Mergers
- Acquisitions
- Financing assignments
The team of experienced M&A advisors at Shoreline Partners understands the process of a merger or acquisition from beginning to end. They utilize their seasoned knowledge to successfully market, negotiate, and close sales, acquisitions, and financing transactions for privately-owned companies. Learn more about Shoreline Partners here.
Acquisitions, when executed successfully, are a great way to grow your business. The right acquisition paired with the right funding can be the key to growing your business effectively. Through this method of growth, businesses are able to expand into new markets, become more competitive, and increase their company’s skill sets. Here’s how to grow your business through acquisitions.
How Does an Acquisition Work as a Growth Strategy?
Acquisitions offer benefits to both parties involved. By combining resources, both companies can gain credibility, find solutions to business challenges, enter new markets, gain expertise, and/or augment management. With the right combination of companies, acquisitions can:
- Expand service or product offerings
- Add new clients or market channels
- Provide talent, experience, and knowledge to one another
- Reduce overhead and lead more efficient operations
- Create new sales opportunities and broaden markets
- Open a new business model
- Reduce time spent on learning or developing the expertise the acquired business provides
Potential Pitfalls of Acquisitions
There are, of course, potential pitfalls that can derail the success of an acquisition. These pitfalls include:
- A culture clash between the two businesses. Not everyone runs their business the same way.
- Merging businesses that are too different from one another.
- Executive decision-makers who are distracted from the goals of the new company.
- Marketplace confusion, when two businesses are not clear on where they live in the marketplace space.
- Not considering how reputation and visibility play a role when acquiring another business could cause the brand strength to weaken.
Be aware of the different pain points to create an actionable plan and strategy to combat these pitfalls.
How to Develop an Acquisition Strategy
Actionable strategies help ensure the success of your acquisition. Addressing the pitfalls listed above in your strategy will already start your new company off on the right track.
Questions to Ask Before your Start Your Acquisition Strategy
- What is the ideal business size your business is seeking to acquire?
- What are you prepared to spend on an acquisition?
- What synergy outcomes are you expecting?
- What service, product or geographic expansion will the acquisition provide?
- Is your business equipped to expand and integrate a new business?
Start by identifying your goals
Before starting an acquisition process, identify your business goals and how one or more acquisitions could help you achieve those goals. Be specific. Creating clear objectives will create the best opportunity for a successful acquisition strategy. A few examples of business goals for your acquisition include:
- Accelerating your growth
- Gaining established customer relationships
- Adding a new business line
- Stepping into new market channels for your business
Be clear about your expectations for your acquisition and the goals that align with this new initiative. These goals will act as a guide when filtering through various acquisition opportunities. They also provide a north star when during the acquisition process and when navigating the uncharted waters of bringing two companies together.
Communicating the Acquisition with your Team
What do your current business partners and employees think about your acquisition strategy? While everyone may not agree, it is important to consider their input. Listening to the pros and cons and the ideas of your stakeholders helps to gain buy-in across the company.
Be Driven by Implementation
Being deliberate in the implementation of your business’s acquisition strategy is critical. Consistent follow-through helps avoid strategic planning goals falling through the cracks.
You may look to hire an experienced transaction attorney, an investment banker/M&A advisor, a CPA, an HR consultant to assist you in the process of acquiring a new company.
A typical acquisition process includes:
- Define the acquisition strategy
- Create investment criteria and budget
- Source and secure funding
- Develop a list of specific criteria for acquisitions – size, geography, industries, etc.
- Research the market to identify potential acquisitions
- Do a deep dive on acquisition prospects including reviewing their websites and other online information
- Develop a target list of prospects that best fit your acquisition criteria
- Reach out to your preferred targets; be prepared to sign an NDA if requested
- Meet with potential sellers; request needed information
- Prepare and present a Letter of Intent (LOI); negotiate the price and other terms.
- Close the acquisition
- Integrate the two businesses
How Do You Increase the Value of Your Company through an Acquisition?
When you’re negotiating an acquisition, make sure the value of your business will be enhanced in the process. Avoid getting caught up in the excitement of the chase to the extent that you overpay for the right acquisition.
While the financial aspects of acquisition are important, consider these other factors that can bolster your company’s value from an acquisition.
- Crafting a story that highlights where the combined companies are moving together in the future. Short-term and long-term benefits add value.
- Integrating company cultures from all parties involved- from the big to the small details, to help strengthen your business model.
- Implementing a new, clear culture in the workplace with actionable processes.
Do you have the right funding for an acquisition?
The right funding for an acquisition can come in the form of various types of loans. Traditional bank loans may not always have the right criteria to fit your business’s capital needs.
At Innovative Capital, we use our partnerships with traditional and alternative lending partnerships to find you the right term and rate for your loan. Learn more about the different lending opportunities available, and the difference between alternative lending vs traditional lending here.
