There is one thing that all companies have in common, no matter the industry, size or line of business. Ultimately, they all strive to grow and to continually generate revenues. However, it is hard for companies to stay ahead at all times, particularly these days when business environment is constantly evolving and demanding constant improvements from its players.
It is indisputable that growth is fundamental to business survival. The problem is most companies can grow organically only to a certain extent.
Let us look at few examples you and your company may stumble upon:
- You want to diversify your business, so that you would not rely on only one business vertical for your revenues and profit – and you invest and keep investing in the development of new verticals only to establish that it will take longer, and it will be much harder to successfully develop them, than you initially anticipated – if you manage to pull it off at all.
- Your company used to be an undisputed leader in a specific niche, but you lost that title, because a competitor entered the market with a completely new business model, significant USP, faster turnaround and is quickly chipping away your market share.
Do any of the above examples resonate with you? They both present only a small part of possibilities why a company would seriously start to think about, and in the end include M&A in their growth and development strategy. As organic growth is getting more and more challenging, M&A may be used as a quicker route to achieve goals of the company.
There are several advantages to using M&A as a way to boost your business, so let us look at a few at least:
1. Quick expansion to new markets and acquisition of new customer base
Acquiring a company which has a strong presence in your target market allows you to enter the new market and acquire a wider customer base relatively quick and easy. You may also utilize distribution channels of the company you acquire and leverage on the credibility and trust they already established in this market.
2. Expanding product or service portfolio
Many companies start with only one product or by providing only one service. While selling only one product or providing only one service may have certain advantages, it most certainly also quite narrows your customer base making it hard for the company to multiply revenues, also because of lack of cross-selling opportunities. It is also possible your current product or service only solves a part of customers’ problems, but your competition offers the “whole package”.
To reach your full market capacity, acquiring the right company and adding their product or service line to your existing products or services may enable you to better serve your customers, which may be exactly that competitive edge you were looking for to gain a larger market share.
3. Access to new talents and resources
It is no surprise that people are the core of any business – they are the revenue-generating wheel. Besides people, company also needs other resources in order to be able to successfully deliver its services and products.
M&A may be an efficient way for your company to acquire desired talent and their know-how, especially if your company is operating in an industry that is experiencing a shortage of experienced professional staff. Additionally, acquiring the right company could also secure other resources you need to successfully operate and grow your business.
4. Changing the balance of power on the market
Economy of scale is sometime the main driver of success. Acquisition of another company enables you to completely change the positioning of your company on the market and helps you achieve unparalleled advantage in comparison to your main competitors. For example, applying new business model which acquired company is already using successfully is less time consuming and less risky than developing it from scratch completely by yourself. The other competitive advantage may also be cutting down operating costs if both companies produce similar products. Lowering operating costs mean lower costs of the products, which in turn mean that you can price and market your product better.
By acquiring another company, you and your company can achieve substantial changes, as described above, in a relatively short period of time. Achieving these goals with sole organic growth and expansion would usually result in a longer period of time and could prove to be a larger financial burden for the company. Of course, there are no guarantees that M&A strategy itself will deliver the desired results. But well thought through and structured transaction increases the chances of successfully utilizing the benefits of M&A.
Feel free to reach out and learn more about M&A and how to approach such corporate transaction – either from the buy side (acquiring another company) or from sell side (deciding to sell your company). With our Transaction READY! solution you can very quickly learn, where do you stand with your contemplated M&A transaction and what your options are. We at DG180 are happy to help!