Rick Smith is founder and M&A expert at nationwide business consultancy, Forbes Burton. They specialise in brokering business sales and advising clients through innovative growth strategies.
There are few growth strategies more powerful than the acquisition or merger of another company. Done right, such a move can skyrocket a company’s standing overnight in a way that more organic growth solutions simply can’t compete with.
Given the economic headwinds that are affecting businesses across the globe, though, does an expensive practice such as acquiring another firm make sense?
There’s actually an argument to be made that there’s never been a better time.
A well-thought-out merger or acquisition can transform a business, even with the economic climate making things difficult for UK companies right now. In fact, we’ve been seeing a number of investors leveraging the current climate to find great acquisition opportunities to provide growth for their businesses. But how are these investors using this to their advantage?
Market share
One of the best things about M&As are their ability to hoover up a large amount of the available market. While any growth is useful in securing more of the available client base, when it comes at the cost of a rival, it practically counts for double.
In essence, not only does your increase in size make you a bigger force in the market, but you also dispose of a competitor at the same time.
Choice is fantastic for customers, but less so for business owners. With fewer options in the market, you’re more likely to secure new custom by virtue of pure mathematics. On top of this, there is less pressure to compete on prices, meaning that there is sometimes scope to increase prices in areas that you’d historically operated under tight margins just to compete.
Succeeding in difficult economic conditions
Despite the financial challenges that businesses currently face, acquiring another company is still a viable means of growth. In fact, with trading conditions so tough, weary business owners are often much more receptive to sale offers.
Running a business has become increasingly difficult over recent years, and many directors will see a sale offer as a golden ticket to a less-stressful existence. For those of us that aren’t ready to get off the hamster wheel just yet though, this means that purchasing a business has become easier, and often, more affordable.
Retirements
The ‘Baby Boomer’ generation is now at an age where retirement is an option, and as such, there should be plenty of businesses looking for a new owner to hand over the reins to.
Investors hoping to pick up one of these companies would be well-advised to pursue more traditional routes to find them. While there are plenty of digitally-savvy septuagenarians, there are still many that would prefer to use local newspaper classifieds and trade magazine ads to advertise their business for sale.
Financing an acquisition
Of course, even though sellers are more receptive to offers than ever, it still requires some form of capital to acquire a business.
The good news, however, is that there are plenty of options available to reduce the amount of initial outlay you need to spend. One of the more popular methods of funding an acquisition is by vendor financing. This is a practice in which the seller allows for a portion of the acquisition fee to be paid off over a period of time using the company’s profits.
This not only allows those without large amounts of capital to purchase businesses, it also allows them to focus the funds they do have on growing the company rather than being used up in the initial acquisition.
Speak to suppliers
If you already operate within the same industry as your target company, you may be able to leverage the relationships you have with your suppliers.
If your target company’s custom would represent something of a coup for your supplier, ask them if they’d be interested in helping fund your acquisition in exchange for you switching it over to them.
Obviously, terms and repayments will differ wildly depending on the supplier you’re dealing with, but these deals do happen from time to time and represent a great option if suitable.
Use the current climate to your advantage
There’s been an unprecedented number of external issues plaguing UK businesses over the last few years: Covid-19, the cost-of-living crisis, and energy prices spiralling due to conflict in Ukraine. One of those alone might be enough to make business owners think about selling, so together, there’s little wonder that so many are interested in exiting.
Much like investing in stocks though, seeing opportunities during a downturn can pay dividends down the line. Those that still find themselves succeeding after all of these headwinds can use this apathy among owners to their advantage, consolidating their position with strategic acquisitions that accelerate growth.
Instead of dismissing M&As in the current economic climate then, it may be worth keeping one eye on the market to stay abreast of what’s for sale. The perfect acquisition may be closer in reach than first thought.
